Valuing the Property and Estate Taxes
Property is valued at fair market value for estate tax purposes. Understanding fari market value and some of the provisions allowed by the IRS can amount to significant savings for the estate and the beneficiaries. The IRS provides some flexibility in how you determine value that can help you lower your estate taxes.
Fair Market Value
Real property is always
appraised at fair market value. This is the estimated price at which a willing
buyer and seller would transact.
Date of Valuation
Property has one of two valuation dates:
-
Date
of Death:
Most often property
is valued on the date of death.
-
Alternative
date:
that is the option of the
estate, providing the alternative date would lower property taxes. If the
alternate date of evaluating fair market value of a property will not
lower the taxes then the date of the deceased is used.
Strategy
The Government provides the
estate for tax purposes some possible strategies to help lower taxes on real
property. The primary reasons to defer the evaluation date are as follows:
-
Declining
Values:
If you want to hold the
property and you believe property values will decline then it would be
advantageous to wait and use the alternate date.
-
Sale
:
If the estate had clear plans to sell the
property then you could use the date of disposition. If you were
reasonably sure that the sale price would be lower than the fair market
value at the time of death, then this might be a valuable tax saving
strategy.
Special Use Valuation
If the property is used for
business or is a farm it may earn the special use designation. Special use
property can be valued differently. If all the requirements are met, the
property will be valued according to current use. The special use method of
valuation can amount to significant savings and should be approached with your
tax adviser.
-
To take advantage of the
special use provisions you must meet the IRS requirements
-
The farm or business must be equal to 50% of the
gross estate and 25% of the adjusted gross estate.
-
The business or farm’s heirs most be close
family members
-
The business or farm must have been owned and
operated for a number of years by close family members.
-
The maximum allowable reduction in 2006 is
$870,000
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