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method for valuing real property in a

movement among the different

The assessed land values in a state

closely held business.

sections;

that provides a differential or use value

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Number, types, and conditions of all

assessment law for farmland or closely

Average annual gross cash rental.

buildings and other fixed improvements

held business;

Generally, the special-use value of

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located on the properties and their

Comparable sales of other farm or

property that is used for farming

location as it affects efficient

closely held business land in the same

purposes is determined as follows:

management, use, and value of the

geographical area far enough removed

1. Subtract the average annual

property; and

from a metropolitan or resort area so

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state and local real estate taxes on

Availability and type of transportation

that nonagricultural use is not a

actual tracts of comparable real

facilities in terms of costs and of

significant factor in the sales price; and

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property from the average annual gross

proximity of the properties to local

Any other factor that fairly values the

cash rental for that same comparable

markets.

farm or closely held business value of

property and

the property.

You must specifically identify on the

2. Divide the result in (1) by the

return the property being used as

Making the Election

average annual effective interest rate

comparable property. Use the type of

charged for all new Federal Land Bank

Include the words “section 2032A

descriptions used to list real property on

loans.

valuation” in the “Description” column of

Schedule A.

any Form 706 schedule if section

Effective interest rate. See Rev.

The computation of each average

2032A property is included in the

Rul. 2008-44, 2008-32 I.R.B. 292, for

annual amount is based on the 5 most

decedent’s gross estate.

the average annual effective interest

recent calendar years ending before the

An election under section 2032A

rates in effect for 2008.

date of the decedent’s death. See

need not include all the property in an

Effective interest rate below.

Net share rental. You may use

estate that is eligible for special-use

average annual net share rental from

valuation, but sufficient property to

Gross cash rental. Generally,

comparable land only if there is no

satisfy the threshold requirements of

gross cash rental is the total amount of

comparable land from which average

section 2032A(b)(1)(B) must be

cash received in a calendar year for the

annual gross cash rental can be

specially valued under the election.

use of actual tracts of comparable farm

determined. Net share rental is the

real property in the same locality as the

If joint or undivided interests (that is,

difference between the gross value of

property being specially valued. You

interests as joint tenants or tenants in

produce received by the lessor from the

may not use appraisals or other

common) in the same property are

comparable land and the cash

statements regarding rental value or

received from a decedent by qualified

operating expenses (other than real

areawide averages of rentals. You may

heirs, an election with respect to one

estate taxes) of growing the produce

not use rents that are paid wholly or

heir’s joint or undivided interest need

that, under the lease, are paid by the

partly in-kind, and the amount of rent

not include any other heir’s interest in

lessor. The production of the produce

may not be based on production. The

the same property if the electing heir’s

must be the business purpose of the

rental must have resulted from an

interest plus other property to be

farming operation. For this purpose,

arm’s-length transaction. Also, the

specially valued satisfies the

produce includes livestock.

amount of rent is not reduced by the

requirements of section 2032A(b)(1)(B).

The gross value of the produce is

amount of any expenses or liabilities

If successive interests (that is, life

generally the gross amount received if

associated with the farm operation or

estates and remainder interests) are

the produce was disposed of in an

the lease.

created by a decedent in otherwise

arm’s-length transaction within the

qualified property, an election under

Comparable property.

period established by the Department

Comparable property must be situated

section 2032A is available only with

of Agriculture for its price support

in the same locality as the specially

respect to that property (or part) in

program. Otherwise, the value is the

which qualified heirs of the decedent

valued property as determined by

weighted average price for which the

generally accepted real property

receive all of the successive interests,

produce sold on the closest national or

valuation rules. The determination of

and such an election must include the

regional commodities market. The

comparability is based on all the facts

interests of all of those heirs.

value is figured for the date or dates on

and circumstances. It is often

which the lessor received (or

For example, if a surviving spouse

necessary to value land in segments

constructively received) the produce.

receives a life estate in otherwise

where there are different uses or land

qualified property and the spouse’s

Valuing a real property interest in

characteristics included in the specially

brother receives a remainder interest in

closely held business. Use this

valued land.

fee, no part of the property may be

method to determine the special-use

valued under a section 2032A election.

The following list contains some of

valuation for qualifying real property

the factors considered in determining

used in a trade or business other than

Where successive interests in

comparability.

farming. You may also use this method

specially valued property are created,

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Similarity of soil;

for qualifying farm property if there is no

remainder interests are treated as

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Whether the crops grown would

comparable land or if you elect to use

being received by qualified heirs only if

deplete the soil in a similar manner;

it. Under this method, the following

the remainder interests are not

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Types of soil conservation

factors are considered.

contingent on surviving a nonfamily

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techniques that have been practiced on

The capitalization of income that the

member or are not subject to

the 2 properties;

property can be expected to yield for

divestment in favor of a nonfamily

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Whether the 2 properties are subject

farming or for closely held business

member.

to flooding;

purposes over a reasonable period of

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Protective Election

Slope of the land;

time with prudent management and

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For livestock operations, the carrying

traditional cropping patterns for the

You may make a protective election to

capacity of the land;

area, taking into account soil capacity,

specially value qualified real property.

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For timbered land, whether the

terrain configuration, and similar

Under this election, whether or not you

timber is comparable;

factors;

may ultimately use special-use

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Whether the property as a whole is

The capitalization of the fair rental

valuation depends upon values as

unified or segmented. If segmented, the

value of the land for farming or for

finally determined (or agreed to

availability of the means necessary for

closely held business purposes;

following examination of the return)

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Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2008 Page 9

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