Instructions For Form It-1 - Inheritance Tax - 2011 (Page 12 of 19) in pdf

You must specifically identify on the return the property

Average annual gross cash rental

being used as comparable property. Use the type of descrip-

Generally, the special–use value of property that is used for

tions used to list real property on Schedule A.

farming purposes is determined as follows:

Net share rental

1. Subtract the average annual state and local real estate

taxes on actual tracts of comparable real property from

You may use average annual net share rental from compa-

the average annual gross cash rental for that same com-

rable land only if there is no comparable land from which

parable property; and

average annual gross cash rental can be determined. Net

share rental is the difference between the gross value of

2. Divide the result on line 1 by the average annual effective

produce received by the lessor from the comparable land and

interest rate charged for all new Federal Land Bank loans.

the cash operating expenses (other than real estate taxes) of

The computation of each average annual amount is based on

growing the produce that, under the lease, are paid by the

the five most recent calendar years ending before the date of

lessor. The production of the produce must be the business

the decedent’s death.

purpose of the farming operation. For this purpose, produce

includes livestock.

Gross cash rental

The gross value of the produce is generally the gross amount

Generally, gross cash rental is the total amount of cash

received if the produce was disposed of in an arm’s-length

received in a calendar year for the use of actual tracts of

transaction, within the period established by the Department

comparable farm real property in the same locality as the

of Agriculture for its price support program. Otherwise, the

property being specially valued. You may not use apprais-

value is the weighted average price for which the produce

als or other statements regarding rental value or area-wide

sold on the closest national or regional commodities market.

averages of rentals. You may not use rents that are paid

The value is figured for the date or dates on which the lessor

wholly or partly in kind, and the amount of rent may not be

received (or constructively received) the produce.

based on production. The rental must have resulted from an

arm’s–length transaction. Do not reduce the amount of rent

Valuing a real property interest in closely held business

by the amount of any expenses or liabilities associated with

Use this method to determine the special-use valuation for

the farm operation or the lease.

qualifying real property used in a trade or business other

than farming. You may also use this method for qualify-

Comparable property

ing farm property if there is no comparable land or if you

Comparable property must be situated in the same locality

elect to use it. Under this method, the following factors are

as the specially valued property as determined by generally

considered:

accepted real property valuation rules. The determination

• The capitalization of income that the property can be

of comparability is based on all the facts and circumstances.

expected to yield for farming or for closely held business

It is often necessary to value land in segments where there

purposes over a reasonable period of time with prudent

are different uses or land characteristics included in the

management and traditional cropping patterns for the

specially valued land. The following list contains some of

area, taking into account soil capacity, terrain configura-

the factors considered in determining comparability.

tion, and similar factors.

• Similarity of soil.

• The capitalization of the fair rental value of the land for

• Whether the crops grown would deplete the soil in a

farming or for closely held business purposes.

similar manner.

• The assessed land values in a state that provides a differ-

• Types of soil conservation techniques that have been prac-

ential or use value assessment law for farmland or closely

ticed on the compared properties.

held business.

• Whether the compared properties are subject to flooding.

• Comparable sales of other farm or closely held business

land in the same geographical area far enough removed

• Slope of the land.

from a metropolitan or resort area so that nonagricultural

• For livestock operations, the carrying capacity of the land.

use is not a significant factor in the sales price.

• For timbered land, whether the timber is comparable.

• Any other factor that fairly values the farm or closely held

• Whether the property as a whole is unified or segmented;

business value of the property.

if segmented, the availability of the means necessary for

movement among the different sections.

Making the election

• Number, types, and conditions of all buildings and other

Include the words “Section 2032A valuation” in the

“Description” column of any Form 706 schedule if Section

fixed improvements located on the properties and their

2032A property is included in the decedent’s gross estate.

location as they affect efficient management, use, and

value of the property.

An election under Section 2032A does not need to include

• Availability and type of transportation facilities in terms

all the property in an estate that is eligible for special use

of costs and of proximity of the properties to local markets.

valuation, but sufficient property to satisfy the threshold

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

Instructions For Form It-1 - Inheritance Tax - 2011 Page 12

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