(1) In general. Effective for estates of decedents dying on or after July 1, 1982, real estate which has been valued at its special use value under 26 U.S.C. Section 2032A for computing the federal estate tax is eligible to be valued for inheritance tax purposes at its special use value, subject to the limitations imposed by statute and these rules. Special use valuation under the provisions of Iowa Code chapter 450B is in lieu of valuing the real estate at its fair market value in the ordinary course of trade under Iowa Code section 450.37. The valuation of real estate at its special use value must be made on the entire parcel of the real estate in fee simple. The value of undivided interests, life or term estates and remainders in real estate specially valued is determined by (1) applying the life estate, remainder or term tables to the special use value-see rule 701-900.7 (450), or (2) by dividing the special use value by the decedent's fractional interest in case of an undivided interest. The eligibility of real estate for special use value is not limited to probate real estate. Real estate transfers with a retained life use or interest, real estate held in joint tenancy, real estate transferred to take effect in possession or enjoyment at death, real estate held by a partnership or corporation and real estate held in trust are noninclusive examples of real estate not subject to probate that may be eligible for special use valuation.
(2) Definitions and technical terms. References in this subrule to sections of the Internal Revenue Code mean sections of the Internal Revenue Code of 1954 as defined (and periodically updated) in Iowa Code section 422.3(5). Technical terms such as, but not limited to, "qualified real property"; "qualified use"; "cessation of qualified use"; "disposition"; "qualified heir"; "member of the family"; "farm"; "farming purpose"; "material participation"; and "active management" are examples of technical terms which have the same meaning for Iowa special use valuation under Iowa Code chapter 450B as the terms are defined and interpreted in 26 U.S.C. Section 2032A. It is the purpose of Iowa special use valuation to conform as nearly as possible to the special use valuation provisions of 26 U.S.C. Section 2032A, as can be done within the framework of an inheritance tax instead of an estate tax.
(3) Eligibility requirements. The eligibility requirements for valuing real estate at its special use value for computing inheritance tax are the same as the eligibility requirements of 26 U.S.C. Section 2032A for the purpose of computing the federal estate tax imposed by 26 U.S.C. Section 2001. Real estate cannot be specially valued for inheritance tax purposes unless it is also eligible and is valued at its special use value for federal estate tax purposes. However, even though real estate is specially valued for federal estate tax purposes, the estate has the right to elect or not to elect to value real estate at its special use value for computing the inheritance tax. Real estate otherwise qualified will be eligible for special use valuation for Iowa inheritance tax purposes if a valid special use valuation election has been made on the federal estate tax return. What constitutes a valid election for federal estate tax purposes is determined under applicable federal law and practice and is not determined by the department.
(4) Real estate-not eligible.
a. Real estate
otherwise qualified is not eligible to be specially valued for inheritance tax
purposes if it is not includable in the federal gross estate. For example, a
gift of real estate may not be part of the federal gross estate. However, the
real estate may be a taxable gift, but the real estate would not qualify for
special valuation.
b. Real estate
otherwise qualified, will not be eligible for the special use valuation
provisions of Iowa Code chapter 450B, if the owner of a remainder, or other
future property interest in the real estate, defers the payment of the
inheritance tax until the termination of the prior estate. Special use
valuation is made at the date of the decedent's death, while Iowa Code section
450.44 requires the future interest to be revalued at the time of the
termination of the prior estate when the tax is deferred. See In re
Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950); department
subrules 900.2(8) and 900.2(9). In addition, when the tax has been deferred the
life estate-remainder factor to be used in computing the tax on the future
interest is the factor existing at the time of payment or the termination of
the prior estate, while the additional inheritance tax under special use value
is based on the life estate-remainder factor at the time of death. See
In re Estate of Millard, 251 Iowa 1982, 105 N.W.2d 95 (1960)
A second valuation after death is not within the scope of either
26 U.S.C. Section
2032A or Iowa Code chapter 450B. Since all
persons with an interest in the real estate must sign the agreement specified
in 900.8(5)"e," the deferral of the inheritance tax on a
future property interest disqualifies all of the property interests in the real
estate because the future property interest is not eligible to be specially
valued in case of a deferral of the tax.
(5) Election and agreement.
a.
In general. The election
to specially value real estate under the provisions of Iowa Code chapter 450B
must be made by the fiduciary for the estate or trust on the inheritance tax
return or on a statement attached to the return. The election may be made on a
delinquent return. However, once made, the election is irrevocable. The
election is an affirmative act. Therefore, failure to make an election on the
inheritance tax return shall be construed as an election not to specially value
real estate under Iowa Code chapter 450B.
b.
Form-election. The
election to value real estate at its special use value shall comply with the
requirements of 26 U.S.C
Section 2032A(d) and federal
regulation Section 20.2032A-8. An executed copy of the election filed as part
of the federal estate tax return and accepted by the Internal Revenue Service
will fulfill the requirements of this subrule.
c.
Content of the election.
The election must be accompanied by the agreement specified in
900.8(5)"e" and shall contain the information required by
federal regulation Section
20.2032A -8. Submission of an
executed copy of the information required by federal regulation Section
20.2032A-8(3) in support of the election to specially value property for
federal estate tax purposes will fulfill the requirements of this
subrule.
d.
Protective
elections. A protective election may be made to specially value
qualified real property for inheritance tax purposes. The availability of
special use valuation is contingent upon values, as finally determined for
federal estate tax purposes, meeting the requirements of
26 U.S.C. Section
2032A. The protective election must be made
on the inheritance tax return and shall contain substantially the same
information required by federal regulation Section
20.2032A -8(b). Submission of an
executed copy of the protective election filed and accepted for federal estate
tax purposes will fulfill the requirements of this subrule
If it is found that the real estate qualifies for special use
valuation as finally determined for federal estate tax purposes, an additional
notice of election must be filed within 60 days after the date of the
determination. The notice must set forth the information required in
900.8(5)"c" and is to be attached, together with the agreement
provided for in 900.8(5)"e," to an amended final inheritance
tax return. Failure to file the additional notice within the time prescribed by
this subrule shall disqualify the real estate for special use valuation.
e.
Agreement. An
agreement must be executed by all parties who have any interest in the property
to be valued at its special use value as of the date of the decedent's death
In the agreement, the qualified heirs must consent to personal liability for
the additional inheritance tax imposed by Iowa Code section
450B.3 in the event of early
disposition or cessation of the qualified use. All other parties with an
interest in the property specially valued must consent to liability for the
additional inheritance tax to the extent of the additional tax imposed on their
share of the property no longer eligible to be specially valued. The liability
of the qualified heir or the successor qualified heir for the additional
inheritance tax is not dependent on the heir's share of the property specially
valued, but rather it is for the amount of the additional inheritance tax
imposed on all of the shares of the parties with an interest in the property no
longer eligible for special use value.
f.
Failure to file the election and
agreement. Failure to file with the inheritance tax return either the
election provided for in 900.8(5)"b" or the agreement
specified in 900.8(5)"e" shall disqualify the property for the
special use value...
