Instructions For Form 706 - 2016 Page 13
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541. Subtract the average annual state
Number, types, and conditions of all
time with prudent management and
and local real estate taxes on actual
buildings and other fixed improvements
traditional cropping patterns for the
tracts of comparable real property from
located on the properties and their
area, taking into account soil capacity,
the average annual gross cash rental for
location as it affects efficient
terrain configuration, and similar factors;
that same comparable property and
management, use, and value of the
The capitalization of the fair rental
property; and
value of the land for farming or for
2. Divide the result in (1) by the
Availability and type of transportation
closely-held business purposes;
average annual effective interest rate
facilities in terms of costs and of
The assessed land values in a state
charged for all new Federal Land Bank
proximity of the properties to local
that provides a differential or use value
loans. See Effective interest rate, later.
markets.
assessment law for farmland or
The computation of each average
closely-held business;
You must specifically identify on the
annual amount is based on the 5 most
Comparable sales of other farm or
return the property being used as
recent calendar years ending before the
closely-held business land in the same
comparable property. Use the type of
date of the decedent's death.
geographical area far enough removed
descriptions used to list real property on
from a metropolitan or resort area so
Schedule A.
Gross cash rental. Generally,
that nonagricultural use is not a
gross cash rental is the total amount of
Effective interest rate. See Tables
significant factor in the sales price; and
cash received in a calendar year for the
1 and 2 of Rev. Rul. 2016–19, 2016–35
Any other factor that fairly values the
use of actual tracts of comparable farm
I.R.B. 273, available at
https://
farm or closely-held business value of
real property in the same locality as the
,
the property.
property being specially valued. You
for the average annual effective interest
may not use:
rates in effect for 2016.
Making the Election
Appraisals or other statements
regarding rental value or areawide
Net share rental. You may use
Include the words “section 2032A
averages of rentals, or
average annual net share rental from
valuation” in the “Description” column of
Rents paid wholly or partly in-kind, or
comparable land only if there is no
any Form 706 schedule if section 2032A
Property for which the amount of rent
comparable land from which average
property is included in the decedent's
is based on production.
annual gross cash rental can be
gross estate.
The rental must have resulted from an
determined. Net share rental is the
arm's-length transaction and the amount
difference between the gross value of
An election under section 2032A
of rent may not be reduced by the
produce received by the lessor from the
need not include all the property in an
amount of any expenses or liabilities
comparable land and the cash operating
estate that is eligible for special-use
associated with the farm operation or
expenses (other than real estate taxes)
valuation, but sufficient property to
the lease.
of growing the produce that, under the
satisfy the threshold requirements of
lease, are paid by the lessor. The
section 2032A(b)(1)(B) must be
Comparable property.
production of the produce must be the
specially valued under the election.
Comparable property must be situated
business purpose of the farming
in the same locality as the qualified real
operation. For this purpose, produce
If joint or undivided interests (that is,
property as determined by generally
includes livestock.
interests as joint tenants or tenants in
accepted real property valuation rules.
The gross value of the produce is
common) in the same property are
The determination of comparability is
generally the gross amount received if
received from a decedent by qualified
based on a number of factors, none of
the produce was disposed of in an
heirs, an election for one heir's joint or
which carries more weight than the
arm's-length transaction within the
undivided interest need not include any
others. It is often necessary to value
period established by the Department of
other heir's interest in the same property
land in segments where there are
Agriculture for its price support program.
if the electing heir's interest plus other
different uses or land characteristics
Otherwise, the value is the weighted
property to be specially valued satisfies
included in the specially valued land.
average price for which the produce
the requirements of section 2032A(b)(1)
The following list contains some of
sold on the closest national or regional
(B).
the factors considered in determining
commodities market. The value is
comparability:
figured for the date or dates on which
If successive interests (that is, life
Similarity of soil;
the lessor received (or constructively
estates and remainder interests) are
Whether the crops grown would
received) the produce.
created by a decedent in otherwise
deplete the soil in a similar manner;
qualified property, an election under
Valuing a real property interest in
Types of soil conservation techniques
section 2032A is available only for that
closely held business. Use this
that have been practiced on the two
property (or part) in which qualified heirs
method to determine the special-use
properties;
of the decedent receive all of the
valuation for qualifying real property
Whether the two properties are
successive interests, and such an
used in a trade or business other than
subject to flooding;
election must include the interests of all
farming. You may also use this method
Slope of the land;
of those heirs.
for qualifying farm property if there is no
For livestock operations, the carrying
comparable land or if you elect to use it.
capacity of the land;
Under this method, the following factors
For example, if a surviving spouse
For timbered land, whether the timber
receives a life estate in otherwise
are considered:
is comparable;
qualified property and the spouse's
The capitalization of income that the
Whether the property as a whole is
brother receives a remainder interest in
property can be expected to yield for
unified or segmented. If segmented, the
fee, no part of the property may be
farming or for closely-held business
availability of the means necessary for
valued under a section 2032A election.
purposes over a reasonable period of
movement among the different sections;
Part Instructions
-13-
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