Inheritance of Farm Exempt from Pennsylvania Inheritance Tax

Inheritance of Farm Exempt from Pennsylvania Inheritance Tax

Under a new Pennsylvania law, there will no longer be an inheritance tax on farms owned by decedents who passed away after June 30, 2012.   The purpose of the law was to preserve farmland from being sold following the death of the owner.

As always, there are a few caveats to the law.

First, the farm must be a working farm, not just empty farmland.  (As a practical matter, this means the farm must produce at least $2,000 per year in gross income.)  The law also applies to the value of agricultural assets, such as livestock, crops and timber.

Second, the law only applies to transfers to lineal descendants (i.e. children and grandchildren), lineal ascendants (parents and grandparents), a spouse and siblings of the decedent.  Importantly, it does NOT apply to transfers to nieces and nephews, same sex partners or other third parties.

Third, if the land ceases to be used as farmland within seven (7) years of the decedent’s death, the inheritance tax will come due.  (As a result, the owner of the real estate must complete an annual form that the land still qualifies as farmland.)

For a copy of the relavent amendments to statute, please refer to Neil Hendershot’s blog, PA EE&F Law Blog.