What Are the Benefits of a Farm Tax ID Number?

Having a farm tax ID number can qualify you for certain estate tax deductions

If you grow a cash crop on your property, you can get it registered as a farm with the IRS. You will then be issued a farm tax ID number, which will entitle you to certain tax benefits. Most of the deductions you can take for equipment and expenses are no different than those available to any other type of business. The real benefits are seen with estate taxes when you pass the farm on to your heirs.

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Deferment

Estate tax deferments for farmers can help keep your property in the family

Estate taxes can require the heirs to a property to immediately pay more than half the property's value to the federal government upon the death of the owner. This has frequently resulted in the loss of the family property, which in some cases must be sold to pay this bill. But those with a farm tax ID number can elect to defer these payments longer than the owners of other types of properties can.

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Minority Interest Discount

Farm properties with multiple owners are valued at a lower rate for estate taxes

If a property with a farm tax ID number is owned by several different parties, each with a minority interest, this can entitle them to certain estate tax deductions. Since such a property will be considerably more difficult to sell on the open market than those with only one party of owners, it is given an IRS discount, and thus valued lower than its actual price for estate tax purposes, resulting in a lower bill.

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Special Use Valuation

A farm tax ID number allows you to value your property by its actual use, rather than its possible use.

Normally, when estate taxes are assessed, the property is valued according to the most profitable use it can possibly have, regardless of what it is actually being used for by the present owners. This results in maximum revenue gain for the government. However, one of the benefits of having a farm tax ID number is that you can value your property according to its actual use at present, which is called a "special use valuation."

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Conservation Easement Deductions

Farm properties can get conservation easements that provide estate tax deductions.

A property with a farm tax ID number can often obtain a conservation easement restricting it to agricultural use. A conservation easement, is an agreement between a landowner and a government restricting the usage of particular land to within certain boundaries for the conservation of natural resources. This becomes binding upon future owners of the property as well. Since these restrictions may lower the property value, it entitles the owners to estate tax deductions.

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