Iowa Administrative Code › Agency 701 - Revenue Department › Title X - Inheritance Tax › Chapter 900 - Inheritance Tax › Rule 701-900.8 - Special Use Valuation

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
In
				general.
Effective for estates of decedents dying on or after July 1,
				1982, real estate which has been valued at its special use value under
				26 U.S.C. Section
				2032A for computing the federal estate tax is
				eligible to be valued for inheritance tax purposes at its special use value,
				subject to the limitations imposed by statute and these rules. Special use
				valuation under the provisions of Iowa Code chapter 450B is in lieu of valuing
				the real estate at its fair market value in the ordinary course of trade under
				Iowa Code section 450.37. The valuation of real estate at its special use value
				must be made on the entire parcel of the real estate in fee simple. The value
				of undivided interests, life or term estates and remainders in real estate
				specially valued is determined by (1) applying the life estate, remainder or
				term tables to the special use value-see rule
				701-900.7 (450), or (2) by
				dividing the special use value by the decedent's fractional interest in case of
				an undivided interest. The eligibility of real estate for special use value is
				not limited to probate real estate. Real estate transfers with a retained life
				use or interest, real estate held in joint tenancy, real estate transferred to
				take effect in possession or enjoyment at death, real estate held by a
				partnership or corporation and real estate held in trust are noninclusive
				examples of real estate not subject to probate that may be eligible for special
				use valuation.
(2)
Definitions and technical terms.
References in this subrule to
				sections of the Internal Revenue Code mean sections of the Internal Revenue
				Code of 1954 as defined (and periodically updated) in Iowa Code section
				422.3(5).
				Technical terms such as, but not limited to, "qualified real property";
				"qualified use"; "cessation of qualified use"; "disposition"; "qualified heir";
				"member of the family"; "farm"; "farming purpose"; "material participation";
				and "active management" are examples of technical terms which have the same
				meaning for Iowa special use valuation under Iowa Code chapter 450B as the
				terms are defined and interpreted in
				26 U.S.C. Section
				2032A. It is the purpose of Iowa special use
				valuation to conform as nearly as possible to the special use valuation
				provisions of 26 U.S.C.
				Section 2032A, as can be done within the
				framework of an inheritance tax instead of an estate tax.
(3)
Eligibility
				requirements.
The eligibility requirements for valuing real estate at
				its special use value for computing inheritance tax are the same as the
				eligibility requirements of 26 U.S.C. Section 2032A for the
				purpose of computing the federal estate tax imposed by
				26 U.S.C. Section
				2001. Real estate cannot be specially valued
				for inheritance tax purposes unless it is also eligible and is valued at its
				special use value for federal estate tax purposes. However, even though real
				estate is specially valued for federal estate tax purposes, the estate has the
				right to elect or not to elect to value real estate at its special use value
				for computing the inheritance tax. Real estate otherwise qualified will be
				eligible for special use valuation for Iowa inheritance tax purposes if a valid
				special use valuation election has been made on the federal estate tax return.
				What constitutes a valid election for federal estate tax purposes is determined
				under applicable federal law and practice and is not determined by the
				department.
(4)
Real
				estate-not eligible.
a. Real estate
				otherwise qualified is not eligible to be specially valued for inheritance tax
				purposes if it is not includable in the federal gross estate. For example, a
				gift of real estate may not be part of the federal gross estate. However, the
				real estate may be a taxable gift, but the real estate would not qualify for
				special valuation.
b. Real estate,
				otherwise qualified, will not be eligible for the special use valuation
				provisions of Iowa Code chapter 450B, if the owner of a remainder, or other
				future property interest in the real estate, defers the payment of the
				inheritance tax until the termination of the prior estate. Special use
				valuation is made at the date of the decedent's death, while Iowa Code section
				450.44 requires the future interest to be revalued at the time of the
				termination of the prior estate when the tax is deferred. See
In re
				Estate of Wickham,
241 Iowa 198, 40 N.W.2d 469 (1950); department
				subrules 900.2(8) and 900.2(9). In addition, when the tax has been deferred the
				life estate-remainder factor to be used in computing the tax on the future
				interest is the factor existing at the time of payment or the termination of
				the prior estate, while the additional inheritance tax under special use value
				is based on the life estate-remainder factor at the time of death. See
In re Estate of Millard,
251 Iowa 1982, 105 N.W.2d 95 (1960).
				A second valuation after death is not within the scope of either
				26 U.S.C. Section
				2032A or Iowa Code chapter 450B. Since all
				persons with an interest in the real estate must sign the agreement specified
				in 900.8(5)
"e,"
the deferral of the inheritance tax on a
				future property interest disqualifies all of the property interests in the real
				estate because the future property interest is not eligible to be specially
				valued in case of a deferral of the tax.