Instructions For Form It-1 - Inheritance Tax - 2011 (Page 10 of 19) in pdf

As part of each Schedule A through I, you must show:

trade or business, or was rented for such use by either the

surviving spouse or a lineal descendant of the decedent

1. What property is included in the gross estate on the date

to a family member on a net cash basis;

of the decedent’s death;

4. The real property was acquired from or passed from the

2. What property was distributed, sold, exchanged, or oth-

decedent to a qualified heir of the decedent;

erwise disposed of within the six-month period after the

decedent’s death, and the dates of these distributions, etc.

5. The real property was owned and used in a qualified

(These two items should be entered in the “Description”

manner by the decedent or a member of the decedent’s

column of each schedule. Briefly explain the status or

family during five of the eight years before the decedent’s

disposition governing the alternate valuation date, such

death;

as: “Not disposed of within six months following death,”

6. There was material participation by the decedent or a

“Distributed,” “Sold,” “Bond paid on maturity,” etc. In

member of the decedent’s family during five of the eight

this same column, describe each item of principal and

years before the decedent’s death; and

includible income);

7. The qualified property meets the following percentage

3. The date of death value, entered in the appropriate value

requirements:

column with items of principal and includible income

a. At least 50 percent of the adjusted value of the gross

shown separately; and

estate must consist of the adjusted value of real or

4. The alternate value, entered in the appropriate value col-

personal property that was being used as a farm or in

umn with items of principal and includible income shown

a closely held business and that was acquired from,

separately. (In the case of any interest or estate, the value of

or passed from, the decedent to a qualified heir of the

which is affected by lapse of time, such as patents, lease-

decedent; and

holds, estates for the life of another, or remainder interests,

the value shown under the heading “Alternate value” must

b. At least 25 percent of the adjusted value of the gross

be the adjusted value; i.e., the value as of the date of death

estate must consist of the adjusted value of qualified

with an adjustment reflecting any difference in its value

farm or closely held business real property.

as of the later date not due to lapse of time.)

For this purpose, adjusted value is the value of property

Distributions, sales, exchanges, and other dispositions of the

determined without regard to its special-use value. The

property within the six-month period after the decedent’s

value is reduced for unpaid mortgages on the property or

death must be supported by evidence. If the court issued an

any indebtedness against the property, if the full value of

order of distribution during that period, you must submit a

the decedent’s interest in the property (not reduced by such

certified copy of the order as part of the evidence. We may

mortgage or indebtedness) is included in the value of the

require you to submit additional evidence if necessary.

gross estate. The adjusted value of the qualified real and

If the alternate valuation method is used, the values of life

personal property used in different businesses may be com-

estates, remainders, and similar interests are figured using

bined to meet the 50 percent and 25 percent requirements.

the age of the recipient on the date of the decedent’s death

and the value of the property on the alternate valuation date.

Qualified real property—Qualified use

The term “qualified use” means the use of the property as a

Line 2. Special use valuation of Section 2032A

farm for farming purposes or the use of property in a trade

Under Section 2032A, you may elect to value certain farm

or business other than farming. Trade or business applies

and closely held business real property at its farm or busi-

only to the active conduct of a business. It does not apply to

ness use value rather than its fair market value. You may

passive investment activities or the mere passive rental of

elect both special use valuation and alternate valuation.

property to a person other than a member of the decedent’s

To elect this valuation, you must check “Yes” on line 2. For

family. Also, no trade or business is present in the case of

a valid election, you must complete and attach Schedule

activities not engaged in for profit.

A-1 and its required attachments with Form IT-1. You

Ownership

may make the election on a late filed return if it is the first

To qualify as special-use property, the decedent or a mem-

return filed.

ber of the decedent’s family must have owned and used the

The decrease in the value of property per Section 2032A will

property in a qualified use for five of the last eight years

be indexed for inflation each year. The maximum decrease

before the decedent’s death. Ownership may be direct or

allowed is $1 million.

indirect through a corporation, a partnership, or a trust.

Real property may qualify for the Section 2032A election if:

If the ownership is indirect, the business must qualify as a

1. The decedent was a U.S. citizen or resident at the time

closely held business under Section 6166. The ownership,

of death;

when combined with periods of direct ownership, must meet

2. The real property is located in the United States;

the requirements of Section 6166 on the date of the decedent’s

3. At the decedent’s death, the real property was used by

death and for a period of time that equals at least five of the

the decedent or a family member for farming or in a

eight years preceding death.

150-103-001 (Rev. 08-11)

Instructions For Form It-1 - Inheritance Tax - 2011 Page 10

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