This evening, Congressman Mike Michaud will join Diane Black (R-Tennessee) to introduce the Keep the Forest and Farm in the Family Act of 2012, which helps protect American farms, forests and ranches from the negative impacts of the estate tax. About 90% of Maine is covered in forestland, and 233,000 families own 5.7 million acres of the state's forest. If families are forced to sell their forestland or harvest timber prematurely to pay the estate tax, Maine risks losing family-owned forests and the benefits they provide.
"This bill helps protect Maine livelihoods and ensures that families who want to maintain their working forests and farms will not be penalized for their efforts," said Michaud. "I support a permanent solution to the estate tax. But we also need to amend current law so that family forest owners aren't forced to sell their land when it changes hands from generation to generation."
The bill introduced today would change two provisions in current law. First, the bill will amend a provision in current estate tax law called the "special use valuation." Special use valuation allows an estate's value to be reduced by as much as $1 million if certain criteria are met. This bill would ensure that harvesting timber in accordance with a forest management plan is considered consistent with maintaining a forest's current use and permitted under special use valuation.
The second provision in the bill would increase the special use valuation exemption from the current level of $1 million to $5 million. As previously mentioned, this exemption reduces the value of the estate on which a forest owner, farmer or rancher would have to pay taxes. In some cases, this additional reduction in estate value would protect them from having to pay the estate tax (by reducing the value below the $5 million threshold in current law).
The forest products industry contributes over $4 billion to Maine's economy, supporting more than 60,000 jobs directly and indirectly. Because 82% of family forest owners have annual household incomes of less than $100,000, families are often forced to sell or harvest timber prematurely when estate taxes come due. A fact sheet on Maine forest land can be found here.
Here is an example of a challenge that the Keep the Forest and Farm in the Family Act of 2012 could help resolve:
Example: Jo landowner inherits forest from his parents worth $6 million at fair market value. Jo can only exempt $5 million of this estate under current law (that allows all a $5 million exemption), so he must pay estate taxes on $1 million--which would be a $350,000 tax bill. Jo can't afford this bill but he doesn't want to sell the land and the timber isn't ready for harvest. So Jo elects the special use valuation, agreeing to keep his forest as forest for 10 years. With this election, Jo reduced the value of the estate to $5 million, so he won't have to pay estate taxes on it. Unfortunately, under current law, if Jo needs to harvest timber in the 10 year timeframe (say his neighbor has a pine beetle outbreak, and Jo wants to take preventive measures) he must pay all or a portion of the estate tax benefits he received under special use valuation plus the typical income or capital gains taxes.