For estate property to be valued using special-use valuation it must be qualified real property, left to a qualified heir to perform a qualified use. The term trade or business applies only to an active business such as manufacturing, mercantile, or service enterprise, or to the raising of agricultural or horticultural commodities. Qualified real property includes residential buildings and other structures and real property improvements regularly occupied or used by the owner or lessee to operate the farm or business. Qualified real property also includes roads, buildings, and other structures, and improvements functionally related to the qualified use. The decedent's ownership in the real property may have been indirect.
Indirect ownership includes ownership of an interest in a corporation, partnership or trust.
Qualified real property includes directly owned real property which was leased by the decedent to a separate closely held business of which the decedent was a stockholder or partner under the guidelines above, on the date of the decedent's death, and for a period of time that equals at least five of the eight years preceding death. No one factor brings about the existence of material participation, but physical work and participation in management decisions are the principal factors to be considered. To constitute material participation, the decedent or a member of the decedent's family must have been employed full-time. Full time means at least 35 hours per week or enough time to fully manage the farm or business. For many farming operations that require only seasonal activity, material participation exists as long as all necessary functions are performed.