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IRS Form 706 (Schedule T) – Section 2032A Property Valuation – In the complex world of estate planning, minimizing taxes while preserving family legacies is a top priority—especially for farmers and business owners. If you’re dealing with a family farm or closely held business, IRS Form 706 Schedule T offers a powerful tool through Section 2032A special use valuation. This provision allows you to value qualified real property based on its actual use rather than its highest fair market value, potentially slashing estate taxes by up to $1.42 million in 2025. But navigating the rules requires precision to avoid costly pitfalls like recapture taxes.
In this comprehensive guide, we’ll break down everything you need to know about IRS Form 706 Schedule T and Section 2032A property valuation, from eligibility to filing tips. Whether you’re an executor, qualified heir, or estate planner, this article equips you with actionable insights based on the latest IRS guidelines.
What is IRS Form 706?
IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, is filed by the executor of a decedent’s estate to calculate federal estate taxes on assets exceeding the exemption threshold—$13.99 million per individual in 2025. It’s required if the gross estate, plus adjusted taxable gifts and certain other items, surpasses this amount. The form covers everything from real estate and stocks to life insurance proceeds.
Key schedules within Form 706 address specific assets or elections, and Schedule T focuses on special valuations to ease the tax burden on family-owned operations. Without tools like Section 2032A, skyrocketing property values could force heirs to sell farmland just to pay taxes, disrupting generational transfers.
What is Schedule T on Form 706?
Schedule T (Form 706)—titled “Section 2032A Property Valuation”—is where executors elect to apply special use valuation under Section 2032A. Revised in August 2025, this schedule attaches to Form 706 and includes four parts:
- Part I: Type of Election – Choose a regular election (full details required) or protective election (initially values at fair market value, with a 60-day window to supplement if qualified).
- Part II: Notice of Election – Details the decedent’s info, qualified use (farm or business), property descriptions, values, and ownership/use history.
- Part III: Agreement to Special Valuation – A binding contract signed by qualified heirs and interested parties, consenting to restrictions and liabilities.
- Part IV: Additional Names and Signatures – For extra signers if space runs short.
The form demands attachments like appraisals, affidavits on material participation, and legal descriptions. It’s invalid without full signatures and evidence, ensuring the IRS can verify compliance.
Section 2032A Explained: A Lifeline for Family Farms and Businesses
Enacted to protect family farms from estate tax erosion, Section 2032A lets you value “qualified real property” at its special use value—think agricultural productivity rather than suburban development potential. This can reduce the taxable value dramatically, but only if the property passes to “qualified heirs” who maintain its use for at least 10 years.
Eligibility Requirements for Section 2032A Valuation
Not every property qualifies. Here’s a breakdown of the must-meet criteria:
| Requirement | Details |
|---|---|
| Qualified Property | Real property (land, buildings, structures) used for farming, ranching, or a closely held business; must be in the U.S. and owned by a U.S. citizen/resident decedent. |
| Ownership and Use History | Decedent or family owned and used it for farming/business for 5 of the 8 years before death (gaps under 30 days ignored if bookended by active periods). |
| Material Participation | Decedent or family actively participated (not passively invested) for 5 of 8 years; spouse’s management counts. |
| Qualified Heirs | Lineal descendants (children, grandchildren), spouses, or their descendants; they must continue qualified use for 10+ years. |
| Percentage Tests | At least 50% of adjusted gross estate must be qualified real/personal property passing to heirs; 25% must be qualified real property. |
| Business Structure | Can be direct ownership or indirect (e.g., via corporation with ≥20% voting stock or ≤45 shareholders). |
Exceptions apply for retirement, disability, or predeceased spouses. Rentals to non-family or passive investments disqualify the property.
Valuation Methods Under Section 2032A
Valuation shifts from fair market value (FMV) to “actual use” value, capped at the difference between FMV and special use. For farms:
- Formula: (Average annual gross cash rental for comparable land – average real estate taxes) ÷ average annual effective interest rate from Farm Credit System loans.
- Comparables: Similar soil, crops, location, and conditions; arm’s-length leases only.
- Alternative: Net share rentals if cash data is scarce.
For 2025, use rates from Rev. Rul. 2025-16 based on your state’s Farm Credit Bank:
| Farm Credit Bank | States Covered | 2025 Rate |
|---|---|---|
| AgFirst, FCB | DE, DC, FL, GA, MD, NC, PA, SC, VA, WV | 6.25% |
| AgriBank, FCB | AR, IL, IN, IA, KY, MI, MN, MO, NE, ND, OH, SD, TN, WI, WY | 5.80% |
| CoBank, ACB | AK, AZ, CA, CO, CT, HI, ID, KS, ME, MA, MT, NH, NJ, NM, NY, NV, OK, OR, RI, UT, VT, WA | 5.78% |
| Texas, FCB | AL, LA, MS, TX | 6.21% |
Business property uses income capitalization or comparable sales. Personal property adjusts similarly if tied to the qualified use. Always attach appraisals.
Limitations and Caps for 2025
The tax savings aren’t unlimited. For decedents dying in 2025, the maximum reduction in value is $1,420,000—up from $1,390,000 in 2024, thanks to inflation adjustments. This cap applies estate-wide, and you can’t mix with other exclusions beyond basics.
| Year of Death | Max Adjustment |
|---|---|
| 2023 | $1,310,000 |
| 2024 | $1,390,000 |
| 2025 | $1,420,000 |
Generation-skipping transfer (GST) taxes integrate via Schedule R, with extra exemption allocation for 2032A property.
IRS Form 706 (Schedule T) Download and Printable
Download and Print: IRS Form 706 (Schedule T)
How to Elect Special Use Valuation on Schedule T
Start by checking “Yes” on Form 706, Part 3, Line 2. Then:
- Complete Schedule T Part II with property details, values, and history statements.
- Attach evidence: Appraisals, participation affidavits, and ownership records.
- For protective elections, value at FMV initially and supplement later.
The election is irrevocable once filed and applies to both estate and GST taxes.
The Agreement and Signatures: Locking in Compliance
Part III of Schedule T is the heart of the election—a legally binding agreement. All qualified heirs, trustees, and remainder interest holders must sign, agreeing to:
- Continue qualified use for 10 years (or until death/disability).
- Personal liability for recapture taxes.
- Designate an IRS agent for notices.
This creates a special lien under Section 6324B on the property for the deferred tax amount plus interest. File it recorded if local law requires, and notify the IRS of changes via Form 706-A within six months.
Recapture Tax: What Happens if Rules Are Broken?
Break the 10-year use rule—through sale, cessation, or substantial change—and face recapture tax under Section 2032A(c). This claws back the tax savings (FMV minus special use value) plus interest, prorated for time remaining. Heirs are personally liable, and the lien sticks to the property. For GST skips, additional taxes apply via Schedule R-1. Early planning with trusts can mitigate risks.
Filing Instructions and Tips for Schedule T
- Deadline: Nine months post-death, extendable six months.
- Where to List: Note “Section 2032A valuation” on relevant Form 706 schedules (A, E, etc.).
- Tips: Use a tax pro for appraisals; integrate with conservation easements (Schedule U) for extra relief. Protective elections buy time if eligibility is iffy.
Common Mistakes to Avoid with Section 2032A
- Overlooking the 5-of-8-year tests or percentage thresholds.
- Incomplete agreements—missing signatures voids the election.
- Using outdated interest rates; always check annual rulings.
- Ignoring GST implications on skips.
- Failing to notify IRS of changes, triggering penalties.
Conclusion: Secure Your Family Legacy with Section 2032A
IRS Form 706 Schedule T and Section 2032A property valuation are game-changers for preserving family farms and businesses amid rising estate taxes. By electing special use valuation, you can defer up to $1.42 million in value reductions for 2025, but strict compliance is non-negotiable. Consult a qualified estate attorney or CPA to tailor this to your situation—your heirs will thank you.
FAQs on IRS Form 706 Schedule T and Section 2032A
What is the maximum reduction under Section 2032A in 2025?
Up to $1,420,000 for qualified family farms.
Who qualifies as a “qualified heir” for special use valuation?
Lineal descendants, spouses, or their issue who continue the property’s qualified use.
Can I elect Section 2032A for part of my property?
Yes, but only qualifying portions passing to heirs, and thresholds must be met estate-wide.
What triggers recapture tax under Section 2032A?
Selling, ceasing qualified use, or substantial changes within 10 years.
Where can I find the latest interest rates for farm valuations?
In Rev. Rul. 2025-16 on IRS.gov.