Iowa Admin. Code r. 701-900.8
Current through Register Vol. 47, No. 11, December 11, 2024
If it is found that the real estate qualifies for special use valuation as finally determined for federal estate tax purposes, an additional notice of election must be filed within 60 days after the date of the determination. The notice must set forth the information required in 900.8(5)"c" and is to be attached, together with the agreement provided for in 900.8(5)"e," to an amended final inheritance tax return. Failure to file the additional notice within the time prescribed by this subrule shall disqualify the real estate for special use valuation.
As a result, failure to fulfill the agreement provided for in 900.8(5)"e" may, in certain circumstances, result in a lower tax liability than would have been the case had the special use valuation election not been made.
The rule for computing the additional federal estate tax under 26 U.S.C. Section 2032A(c) is different. See lines 8 to 11, Additional Federal Estate Tax Form 706-A and IRS letter ruling 8215036 (1982).
Iowa Code section 450.9 and the rates of tax specified in Iowa Code section 450.10 in effect at the time of the decedent's death. A credit is allowed against the amount of the recomputed tax, without interest, for the tax paid which was based on the special use value.
EXAMPLES: Disposition of all of the qualified real property.
It is assumed in these examples that the real estate has qualified for special use valuation and that prior to the date of disposition, the real estate remained qualified.
EXAMPLE. Farmer A, a widower, died July 1, 1992, a resident of Iowa, and by will left all of his property to his three nephews in equal shares. Nephew B operates the farm. Nephew C lives in Des Moines, Iowa, and Nephew D lives in Phoenix, Arizona. At the time of death, Farmer A's estate consisted of:
Asset | Fair Market Value | Special Use Value |
160-acre Iowa farm | $ 480,000 | $ 160,000 |
($3,000 per acre) | ($1,000 per acre) | |
Grain and livestock | 90,000 | 90,000 |
Stocks, bonds and bank accounts | 80,000 | 80,000 |
Gross Estate | $ 650,000 | $ 330,000 |
Less: Deductions without federal estate tax | 25,000 | 25,000 |
Net estate before federal estate tax | $ 625,000 | $ 305,000 |
COMPUTATION OF THE INHERITANCE TAX UNDER SPECIAL USE VALUATION
TAX ON SHARES
On October 15, 1995, Nephew B, the qualified heir, retires from farming and all three nephews sell the farm to a nonrelated party for $3,200 per acre, or $512,000. Under 86.8(6)"c," the $3,000 per acre valuation at death governs the computation of the additional inheritance tax.
COMPUTATION OF THE ADDITIONAL INHERITANCE TAX DUE TO THE EARLY DISPOSITION OF THE QUALIFIED USE PROPERTY
NOTE: In this example, the total additional tax for the three nephews before a credit for tax previously paid is $27,250.00 × 3 or $81,750.00. The credit for state death taxes paid on the revalued federal estate is $9,250.00. Therefore, the larger amount is the additional tax, before the credit for tax previously paid is deducted. The additional inheritance or Iowa estate tax bears interest at 10 percent beginning the last day of the ninth month after the decedent's death until the due date, which is six months after the disposition of the specially valued real estate. Interest accrues on delinquent tax at the same rate. Since interest only accrues on unpaid tax, the amount of the interest in this example would have been less if the tax had been paid prior to its due date, April 15, 1996.
EXAMPLE 1. First partial additional tax. Assume the fair market value of three parcels of real estate owned by a single qualified heir (brother of the decedent) is $100,000 and the special use value of the three parcels is $75,000. The qualified heir is in the 10 percent tax bracket. FMV in this example means fair market value.
Parcel 1, fair market value | $25,000 |
Parcel 2, fair market value | 50,000 |
Parcel 3, fair market value | 25,000 |
Computation of Maximum Amount of Additional Tax
Computation on the First Partial Additional Tax Parcel 1, sale to an unrelated party
Computation of the second and succeeding partial dispositions or cessations of the qualified use can be illustrated by the following examples:
EXAMPLE 2. Second partial additional tax. Same facts as in Example 1. In this example, Parcel 2 is sold to an unrelated party.
Computation of the Second Partial Additional Tax
EXAMPLE 3. Third partial additional tax. Same facts as in Example 1. In this example, Parcel 3 is sold to an unrelated party.
Computation of the Third Partial Additional Tax
EXAMPLE. Decedent A, a widower and resident of Iowa, died testate July 1, 1992, survived by nephew B and niece C. His estate consisted of two Iowa farms and certain personal property. Under A's will, the niece and nephew share equally in the personal property. Nephew B received one farm and niece C the other one. Nephew B, a qualified heir, elected to specially value his farm and niece C did not. The inheritance tax was paid on this basis. Five years after A's death, nephew B quits farming and sells his inherited farm to an unrelated party, thus incurring an additional inheritance tax. Only nephew B owes an additional tax. Niece C's share in the estate is not revalued.
This rule is intended to implement Iowa Code sections 450B.1 to 450B.7.
Iowa Admin. Code r. 701-900.8
ARC 1545C, IAB 7/23/14, effective 8/27/14; Editorial change: IAC Supplement 11/2/22; Editorial change: IAC Supplement 10/18/23; ARC 7192C, IAB 12/13/23, effective 1/17/24