Real estate is normally valued at an amount that reflects its “highest and best use” for reasons concerning the federal estate tax. In fact, the general rule is that a property’s fair market value (FMV) upon the owner’s date of death is the value that reflects its highest and best use.
However, such valuation can yield results that are unfair. An example of an unjust outcome is where a family farm is situated next to commercial real estate that is considered to be more valuable. In response to these unfair results, the Internal Revenue Code allows certain real estate to be appraised at its “actual use” instead of its “highest and best use.” This type of appraisal applies specifically to the owners of farms and small businesses, provided that certain requirements are met.
There are three requirements of special use valuation of property:
The “10 year rule” is that your heirs may be unable to benefit from the special use valuation if, within 10 years of your demise, they sell or get rid of the property in some other way by transferring it to people who are not considered to be close family members. This rule also applies if your heirs start using the property for a different purpose within 10 years after you die.
If you would like to take advantage of the special use real estate valuation for your business or farm, you should consult an estate attorney. They can advise you as to whether you qualify.
Last Modified: 06-23-2015 02:20 PM PDTLaw Library Disclaimer
We've helped more than 4 million clients find the right lawyer – for free. Present your case online in minutes. LegalMatch matches you to pre-screened lawyers in your city or county based on the specifics of your case. Within 24 hours experienced local lawyers review it and evaluate if you have a solid case. If so, attorneys respond with an offer to represent you that includes a full attorney profile with details on their fee structure, background, and ratings by other LegalMatch users so you can decide if they're the right lawyer for you.