Special-use valuation
Special-use valuation is the name for the election under section 2032A of the Internal Revenue Code. Under section 2032A, an executor may elect to value qualified real property used as a farm or in another trade or business at its qualified-use value. The alternative standard is fair market value.
How it works
Section 2032A gives an executor a choice between two valuation standards for qualified real property. One standard is qualified-use value. The other is fair market value.
Where it shows up for owners of businesses, real estate and private investments
A family farm and a business that uses real property in its operations are the owner situations that the wording of section 2032A reaches. The statute refers to qualified real property used as a farm or in another trade or business.
Section 2032A is not regularly used for closely held businesses. Commentary cites technical requirements, a reduction in the real property's income tax basis once the election is made, and concern about later estate tax recapture.
Points that are easy to confuse
Qualified-use value and fair market value are two separate valuation standards named in section 2032A. Agricultural-use value is the term practitioners use for farmland.
Common questions
Which part of a farm estate does section 2032A address?
The statute names qualified real property used as a farm as one of the property categories, alongside real property used in another trade or business.
Why is special-use valuation not regularly used for closely held businesses?
Practitioners point to technical requirements, a reduction in the real property's income tax basis once the election is made, and concern about later estate tax recapture.