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Q:  Do you have examples of how the estate tax deduction for farms works?

A: 

1. The decedent died May 18, 2005 , with an adjusted gross estate valued at $4 million. The decedent was a dry land wheat farmer and owned land and equipment valued at $2.5 million. The farm value is more than half the total value of the estate.

Taxable estate

$4,000,000

Less $2,500,000 farm deduction

- $2,500,000

Less $1,500,000 statutory exemption (for 2005 deaths)

- $1,500,000

Washington taxable estate

$0

2. The decedent died August 28, 2005 , with an adjusted gross estate valued at $5 million. The value of his farm is $2.3 million. The estate cannot deduct the value of the farm because it is less than half the total value of the estate.

Taxable estate

$5,000,000

Less $1,500,000 statutory exemption (for 2005 deaths)

- $1,500,000

Washington taxable estate

$3,500,000

The estate owes $470,000 in Washington estate tax. While the decedent did not qualify for the farm deduction, the estate may be able to pay the tax over 15 years. 

 

3. The decedent died May 23, 2006 , with an adjusted gross estate valued at $1.6 million. The decedent was a tenant hay farmer who owned $800,000 in farm equipment. The value of the equipment is half of the total estate so it can be deducted.

Taxable estate

$1,600,000

Less $800,000 farm deduction

- $800,000

Less $2,000,000 statutory exemption (for 2006 deaths)

- $2,000,000

Washington taxable estate

$0

4. The decedent died January 1, 2006 , with an adjusted gross estate valued at $6 million. The decedent owned farm land and equipment valued at $3 million. The value of the farm and farm equipment is 50 percent of the adjusted gross estate, so it can be deducted.

Taxable estate

$6,000,000

Less $3,000,000 farm deduction

- $3,000,000

Less $2,000,000 statutory exemption (for 2006 deaths)

- $2,000,000

Washington taxable estate

$1,000,000

Based on the tax rate of 10%, the estate owes $100,000 ($1,000,000 x 10%) in Washington estate tax.

More information
More information about estate tax
Related questions & answers
Are farms subject to the estate tax?
In regards to the estate tax deduction for farms, what is the definition of a farm?
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