Special Use Valuation

[Kathleen Reynolds]

#3949

For Federal estate tax purposes (not gift tax), an executor may elect to have qualified real property (farm and trade or business property) valued on its “actual use” rather than the “highest and best use” for the property. The reduction in value may not be greater than $1,160,000 (for 2018, plus future inflation adjustments in $10,000 increments). To qualify, the requirements under IRC Section 2032A must be satisfied. The following is a summary of some of the major requirements:

• The net value of the property used in the business or farm operation (real and personal) must equal at least 50% of the gross estate (net of indebtedness on property).
• Qualified real property must be at least 25% of the gross estate.
• The real property must have been owned and used for the qualified use (material participation) by the decedent (or family member) for five of last eight years prior to death.
• The property must pass to a “qualified heir”: spouse; ancestors of the decedent; lineal descendants of the decedent or decedent’s spouse or parent; or a spouse, widow or widower of any such lineal descendant.

The tax benefits obtained via the special use valuation will be recaptured if within 10 years the qualified heir:

• Disposes of the property (except to other family members)
• Terminates the “qualified use requirement,” or fails the material participation test.

Click the Edit button to set the specifications of the Special Use Valuation:

• The name of the Special Use Valuation
• To select the asset to use to fund this technique, click the ‘+’ button.
• Verify the amount listed as Principal.
• Current Use Valuation Enter the amount of the valuation after the §2032A exclusion is considered.

 

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