Interspousal Farm Transfers
Many farmers hear advice to add their spouse's name to farm property before selling to double the Lifetime Capital Gains Exemption. Unfortunately, this strategy does not work.
- Farm property can roll over tax-free between spouses
- Automatic rollover at cost basis unless you elect otherwise
- Can elect to transfer at fair market value for specific benefits
- LCGE planning is crucial in spousal transfers
Spousal Rollover Rules
When transferring farm property to your spouse (or common-law partner), the default rule is a tax-free "rollover" at your adjusted cost base. No capital gain is triggered at the time of transfer.
Default vs Election
Transfer at your cost base. Spouse inherits your ACB. Capital gains deferred until they sell.
Elect to transfer at FMV. Triggers capital gain now. Useful to use your LCGE before death.
When to Elect FMV Transfer
- You have unused LCGE you want to crystallize
- Property has appreciated significantly
- You want to step up cost base for future sale
- Estate planning purposes
After transfer, income from the property may be attributed back to you for tax purposes. Capital gains are attributed but may be exempt via LCGE.
Planning a Farm Transfer?
Tax Punjabi can help you structure spousal transfers for maximum tax efficiency.