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home value If the property is disposed of within ten years after the death of the decedent to nonfamily members or ceases to be used for farming or other closely-held business purposes, the tax benefits are fully or partially recaptured.
1. Full recapture occurs within the first ten years.
2. Recapture does not occur, however, on death of the qualified heir.
3. Partial dispositions lead to partial recapture of the tax savings.
4. The qualified heirs are responsible for the recaptured tax.
5. For purposes of “cessation of qualified use,” absence of material participation for three or more years during any eight-year period ending after decedent’s death triggers recapture.
6. A special lien, in favor of the United States, will be attached to the property. Liens on loans by the Treasury will be subordinate to bank loans.
7. A two year grace period after the decedent’s death during which a qualified heir’s failure to use the qualifying property in the qualified use will not cause imposition of a recapture tax.
8. Active management by eligible qualified heirs will satisfy the post-death material participation requirement. Eligible heirs in this case include the decedent’s spouse, or a qualified heir who has not attained age 21, who is a student or is disabled.
Tags: Recapture of “Current Use” Benefits
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home value The “Current Use” value is determined in one of two ways:
1. Capitalization of rent, which is computed by dividing the average annual gross cash rental for comparable farmland in the locality, less average real property taxes, by the average annual effective interest rate for all new Federal Land Bank loans. Five year average data is used. If there is no comparable land from which the average annual gross cash rental may be determined, “average net share rental” may be substituted for average gross cash rental. Net share rental is defined as the excess of the value of the produce received by the lessor of the land over the cash operating expenses of growing such produce, which are paid by the lessor under terms of the lease.
Each average annual computation is to be made on the basis of the five most recent calendar years. For decedents dying in 2006, the average interest rate was 7.75 percent. The following example assumes that the current average land rent is $32.50 per acre, taxes are $2.50 per acre, and the Federal Land Bank interest rate 75.75 percent.
32.50 - $2.50 = $ 387.10 per acre current use value .0775
2. If there are no comparable sales or the formula method is not used, the value of real property may be deter- mined by application of the following factors:
a. The capitalization of income that the property can expect to yield for farming or for closely-held business purposes over a reasonable period of time under prudent management, using traditional cropping patterns for the area, taking into account soil capacity, terrain configuration, and similar factors.
b. The capitalization of the fair rental value of the land for farming or for closely-held business purposes.
c. The assessed land values in a state that provides a differential or use value assessment law for farmland or closely-held business property.
d. Comparable sales of other farm or closely-held business land in the same geographical area far enough removed from a metropolitan or resort area so that nonagricultural use is not a significant factor in the sales price.
e. Any other factor which fairly values the farm or closely-held business value of the property.
Tags: Calculating “Current Use” Value