Washington, DC – U.S. Senator Dianne Feinstein (D-Calif.) has signed on as a co-sponsor to the Family Farm and Ranch Act of 2007, which would exempt certain qualifying family owned farms and ranches from the federal estate tax.

The legislation, sponsored by Senator Ken Salazar (D-CO), is intended to protect family farmers and ranchers from a tax burden that could force them, due to skyrocketing land values, to sell all or part of their businesses. It contains several provisions to ensure that it applies only to heirs who continue to use their property for farming and ranching.

“In America today, many ranchers and farmers are prevented from passing their businesses along to their heirs, because soaring property values can drive the estate tax to very high numbers. This legislation will protect American farmers and ranchers, and ensure that farms and ranches can stay in the family from one generation to the next,” Senator Feinstein said.

The Family Farm and Ranch Act of 2007 would exempt farmers and ranchers from paying any federal estate tax provided:

• The decedent or a member of their family owned the farm in at least five of the last eight years.
• The decedent or a member of their family has been actively involved in management and operation of the farm, defined by the Internal Revenue Service as “material participation,” in at least five of the last eight years.
• The land must have been used for farming at the time of death under one of the following conditions:
• More than 50 percent of the income was derived through farming for at least three of the last five tax years; or
• The qualified farmland comprises more than 50 percent of the deceased’s adjusted gross estate at the time of death.
• At the time of death, the decedent must have been a U.S. citizen or legal resident of the United States.

Additionally, to ensure that people do not take advantage of the estate-tax exemption, this legislation would institute a “recapture tax” in the event that:

• The heir disposes of any interest in the farmland to anyone outside their family; or
• The heir ceases to use the property for farming purposes.

The recapture tax would be equal to the estate tax the heir would have paid, plus any capital gains tax owed on the appreciated value of the estate.