IRS “Ag Preserves” for Estate Tax Most of us are aware of Ag Preserves, also known as Land Conservation Contracts, which are available through the Williamson Act. The purpose for using Ag Preserves is that a landowner will often pay substantially less property tax. The landowner agrees to keep the land that is subject to the Land Conservation Contract in ag production over the subsequent ten year period. In return, the land is assessed at its value based on agricultural operations and not on higher speculative development values.

There is a similar, but little known, estate tax benefit provided to agriculturalists from the IRS. Based upon a similar concept, the IRS will accept what is often a much lower valuation for the purpose of estate taxation, if the descendants of the decedent agree to keep the ground in ag production for a subsequent 10 year period.

A further benefit to this rule is it that the law allows the beneficiaries of that estate to continue their 10-year obligation of ag production on another property if the original property is sold. This is much like the 1031 tax deferred exchanges we discussed in the last issue of AgLand News, however a “replacement” property must be of a similar qualified use (i.e. agriculture).

In order to qualify for this benefit, there are several criteria that must be met, including:

• The property must pass on to qualified heirs.
• The estate must file a “recapture agreement”.
• The property must be of a qualified use (agriculture).
• The decedent, or an immediate family member, must have owned the property and participated in its operation for a minimum time.
• The ag real property and ag personal property must comprise at least 50% of the estate.
• At least 25% of the estate must be qualified ag real property.

The special use valuation is based upon a formula using the average annual cash rent for comparable land, less property taxes. This is then divided by the interest rate charged by Farm Credit to new borrowers to establish the special use valuation.

Of course, the regulations are more complex than we can share with you here. Discuss this issue further with your professional tax advisor.

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Information provided herein has been obtained from sources deemed reliable, but is not guaranteed