Instructions For Form It-1 - Inheritance Tax - 2011 (Page 11 of 19) in pdf

If the property was leased by the decedent to a closely held

five of the eight years ending on the date of the decedent’s

business, it qualifies as long as the business entity to which

death. The existence of material participation is a factual

it was rented was a closely held business with respect to the

determination, but passively collecting rents, salaries, draws,

decedent on the date of the decedent’s death and for suf-

dividends, or other income from the farm or other business

ficient time to meet the “five in eight years” test property.

does not constitute material participation. Neither does

merely advancing capital and reviewing a crop plan and

Structures and other real property improvements

financial reports each season or business year.

Qualified real property includes residential buildings and

In determining whether the required participation has

structures and real property improvements regularly occu-

occurred, disregard brief periods (e.g., 30 days or less) during

pied or used by the owner or lessee of real property (or by

the employees of the owner or lessee) to operate the farm or

which there was no material participation, as long as such

business. A farm residence which the decedent had occu-

periods were both preceded and followed by substantial

pied is considered to have been occupied for the purpose

periods (more than 120 days) during which there was unin-

of operating the farm even when a family member and not

terrupted material participation.

the decedent was the person materially participating in the

Retirement or disability

operation of the farm.

If, on the date of death, the time period for material partici-

Qualified real property also includes roads, buildings, and

pation could not be met because the decedent had retired or

other structures and improvements functionally related to

was disabled, a substitute period may apply. The decedent

the qualified use.

must have retired on Social Security or been disabled for a

Elements of value such as mineral rights that are not related

continuous period ending with death. A person is disabled

to the farm or business use are not eligible for special-use

for this purpose if he or she was mentally or physically

valuation.

unable to materially participate in the operation of the farm

Property acquired from the decedent

or other business.

Property is considered to have been acquired from or to have

The substitute time-period for material participation for

passed from the decedent if one of the following applies:

these decedents is a period totaling at least five years out of

• The property is considered to have been acquired from or

the eight-year period that ended on the earlier of:

to have passed from the decedent under Section 1014(b)

1. The date the decedent began receiving Social Security

(relating to basis of property acquired from a decedent).

benefits; or

• The property is acquired by any person from the estate.

2. The date the decedent became disabled.

• The property is acquired by any person from a trust, to

the extent the property is includible in the gross estate.

Surviving spouse or Oregon registered domestic partner

A surviving spouse who received qualified real property

Qualified heir

from a predeceased spouse is considered to have materially

A person is a qualified heir of property if he or she is a

participated if he or she was engaged in the active manage-

member of the decedent’s family and acquired or received

ment of the farm or other business. If the surviving spouse

the property from the decedent. If a qualified heir disposes

died within eight years of the first spouse’s death, you may

of any interest in qualified real property to any member

add the period of material participation of the predeceased

of his or her family, that person will then be treated as the

spouse to the period of active management by the surviv-

qualified heir with respect to that interest.

ing spouse to determine if the surviving spouse’s estate

The term member of the family includes only:

qualifies for special-use valuation. To qualify for this, the

• An ancestor (parent, grandparent, etc.) of the individual;

property must have been eligible for special-use valuation

in the predeceased spouse’s estate, though it does not have

• The spouse of the individual;

to have been elected by that estate.

• The lineal descendant (child, stepchild, grandchild, etc.)

of the individual, the individual’s spouse, or a parent of

For additional details regarding material participation, see

the individual; or

federal Regulations Section 20.2032A-3(e).

• The spouse, widow, or widower of any lineal descendant

Valuation methods

described above.

The primary method of valuing special–use value property

A legally adopted child of an individual is treated as a child

that is used for farming purposes is the annual gross cash

of that individual by blood.

rental method. If comparable gross cash rentals are not

Material participation

available, you can substitute comparable average annual

net share rentals. If neither of these are available, or if you

To elect special-use valuation, either the decedent or a mem-

so elect, you can use the method for valuing real property

ber of his or her family must have materially participated

in the operation of the farm or other business for at least

in a closely held business.

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

Instructions For Form It-1 - Inheritance Tax - 2011 Page 11

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