Gifting Farmland to Your Kids in Illinois: The Basis Problem
Year-end brings a familiar idea: give the farm to the kids now, while it is simple. For most Illinois families, the federal estate tax is no longer the reason to do that. The reason to slow down is income tax, and a rule called basis.
Does the federal estate tax still matter for Illinois farms?
Not for most. The One Big Beautiful Bill Act raised the federal lifetime gift and estate exemption to $15 million per person, indexed for inflation. Only the largest farm estates face federal estate tax at that level. One commentator on farm succession put it this way in January: for most farmers, estate planning is now mainly income tax planning.
That does not mean you can stop planning. It means the question changes.
What is basis, and why does gifting change it?
Basis is, roughly, what the tax system says you paid for an asset. When land passes at death, basis generally resets to its value on the date of death. An heir who sells soon after owes little or no income tax on the gain that built up during your lifetime.
A lifetime gift works the other way. The child takes your original basis. If you bought the ground decades ago, that number can be small, and a later sale can trigger a large capital gains bill. The same ground that passes with a stepped-up basis at death can pass with a built-in tax bill if you gave it away while alive.
If the land will stay in the family for generations and never be sold, the lost step-up matters less. If any heir might sell, it matters a great deal.
What about the Illinois estate tax?
Illinois has its own estate tax, and it does not follow the federal exemption. The Illinois exclusion is $4 million per person. The Attorney General's instructions describe it as a taxable threshold, not a credit, and state that a Form 700 is required when gross value, with adjusted taxable gifts added back, exceeds $4 million. Tax is due nine months after death.
Two features catch farm families. First, Illinois estate tax is computed with a cliff-like effect, so an estate over the threshold is not taxed only on the excess. The Attorney General's own example shows $285,714 of Illinois tax on a $5 million estate held entirely in Illinois. Second, Illinois does not allow a surviving spouse to carry over an unused exclusion, which is called portability.
Farmland at current values can reach $4 million quickly. Western Illinois land in the Excellent range is around $15,400 per acre according to University of Illinois Extension, so a farm of roughly 260 acres of that grade, before any buildings or equipment, can cross the line.
So should you gift farmland or hold it?
I am not the person to answer that for your family, and nobody should answer it in a blog post. What I can do is lay out the questions your attorney and tax preparer need you to bring:
- Will any heir sell, or will the land stay in the family?
- How low is your basis, and what is the likely gain?
- Does your total estate come near $4 million for Illinois purposes?
- Do you need the land's income to live on?
- Would a transfer on death instrument, a trust or an LLC meet your goal without giving up the step-up?
Frequently asked questions
Does a gift of farmland get a stepped-up basis? No. A recipient of a lifetime gift generally takes the donor's basis. The step-up applies to property passing at death.
What is the Illinois estate tax exemption? $4 million per person, and it has not changed in years. Federal is $15 million.
Do I owe Illinois tax if I give land away during my life? Illinois has no separate gift tax, but taxable lifetime gifts are added back when the Attorney General tests the estate against the $4 million threshold.
When is Illinois estate tax due? Nine months after the date of death, with extensions available.
Text the word LAND to 217-673-0306.
Frequently Asked Questions
Does a gift of farmland get a stepped-up basis?
No. A recipient of a lifetime gift generally takes the donor's original basis. The step-up applies to property passing at death.
What is the Illinois estate tax exemption?
The Illinois exclusion is $4 million per person, separate from the $15 million federal exemption, and Illinois does not allow portability.
When is Illinois estate tax due?
Nine months after the date of death, with extensions available through the Attorney General.
Sources
- The Packer: How the $15 Million Estate Tax Exemption Changes Your Farm Succession Strategy
- Illinois Attorney General: Estate tax instruction sheet (2023 decedents)
- Mercer Advisors: Illinois estate tax
- University of Illinois Extension: Illinois Farmland Values, 2026
This article is general information, not legal, tax or financial advice. Rules and dates change, so confirm the details with the agency or professional named above before you act.
Jared Williams is the Managing Broker and owner of Archer Realty & Auction LLC. He is a licensed Illinois auctioneer, serves on the Menard County Board of Review, and specializes in agricultural, recreational, estate, and commercial land across central and western Illinois. Start the conversation at archerrealty.net.
