Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 86 - Inheritance Tax › Rule 701-86.8 - 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 45 OB is in lieu of valuing the real estate
				at its fair market value in the ordinary course of trade under Iowa Code
				section
				45037..
				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 (I) applying the life estate, remainder or term tables to the
				special use value-see rule 86.7(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
				4223(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 45 OB, 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
				45044.
				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
				86.2(8) and 86.2(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 86.8(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.