IRS Section 2032A - Special Land Use Valuation

In my last post, I discussed in general, an alternative estate tax valuation (IRS Section 2032) of an ongoing farm operation. These bullet points with more specific information were found in a publication entitled Estate Planning and found at this website. (http://www.farmestateplan.com/).

For an estate to take advantage of section 2032A special land use valuation, it must meet several conditions. The considerations for qualifying are:

• The farm estate must be made up of "real property" used in farming that has a fair market value of at least 25% of the total value of the adjusted estate


• The farm assets, both real and personal, must make up at least 50% of the estate


• The farm real property must have been owned by the deceased (or a family member) for 5 of the preceding 8 years


• The real property qualifying for special land use must pass to a qualifying heir (usually a family member)


• For 5 of the preceding 8 years, the qualifying real property must have been farmed or materially participated in by the deceased or a member of the family


• The executor must file an election for 2032A, with an agreement signed by each person having an interest in the property, consenting to the liability for any estate tax recapture that may occur later

As I am reading this, it reminds me of another reason to consider estate planning for those in the northern tier who will be receiving large amounts of natural gas royalties and lease payments. If at the time of a landowner's death, no estate planning has taken place, then the opportunity to use IRS 2032A is less likey to be available. This is because of the first two bullet points listed above. It will be more likely that the farm real estate will make up less than 25% of the total value of the estate and total farm assets will make up less than 50% of the total value of the estate.

Federal Estate Issues and your Farm

Farm Estate Tax Deduction with 2032a - With the Natural Gas Phenomenon contiuing in many parts of Pennsylvania, questions regarding Estate Planning have become abundant. One question that I am hearing from some farmers is the question of Special Land Use Valuation. Basically, if my farm enterprize continues after my death, are there any Federal Estate Taxbreaks given to the inheritors of my farm? The answer is yes based on the Internal Revenue Code Section 2032A, Special Land Use Valuation.
The purpose of Section 2032A is to allow farmland to be valued as farmland. In essence, it establishes a productive value that is less than the farmland's fair market value. I will try to delve into the specifics of section 2032A in future blogs. In the meantime, if you would like more information, here is good resource.
IRS Publication 448 Federal Gift and Estate Taxes

P.S. Please keep in mind that section 2032A is related to farming enterprizes. This would not include future income derived from natural gas drilling and underground assets.