Special Use Valuation In Estate Taxes

For estate tax purposes property is taxed at fair market value, which means that the value is set based on the mostprofitable use for the property.  For example if your vacation cottage on a serene lake in Minnesota
is worth $50,000.00 to someone who wants to continue taking fishing trips to the cottage like you
did, but an oil company wanting to strip the earth for tar sands is willing to pay $250.000 for the
land, the value for estate tax purposes will be $250,000.

There is an exception however that principally applies to family farms but can also be used for
other real estate used in a business. The exception allows the property used in the farm or business
to be valued at its current use with a reduction of up to $1,070,000 from what the real estate would
sell for, if it was put to its highest and best use.

For the exception to apply the real estate must be located in the United States and the decedent
must leave it to qualified heirs, which would be a spouse, direct descendants, or the spouse of a
direct descendant.  Both the decedent and the qualified heirs must materially participate in the
operation of the business, or in other words they must be out working the farm rather than merely
renting out the farm land.