Section 2032A alternate valuation

[JoshinNC]

Section 2032A provides for an estate to take an alternate valuation for farm property or property used in a trade or business. I have an estate that includes residential rentals, which make up about 70% of the total estate's value. We want to take the alternate value. The code provides for 5 factors to be used in determining the alternate valuation, (1) capitalized income from the activity, (2) capitalized fair rental value, (3) State assessed values of the property, (4) comparable sales, and (5) other factors which "fairly" value the property.

I assume that we must average the 5 factors to come up with a value? I have done some research into prior court decisions regarding this but am a little slow on "capitalized" income. What would be a good capitalization rate for residential rentals, 5%, 8%, 10%, or more? If anyone has had experience with this I would greatly appreciate some help.

This provision was put into place specifically to provide estates where the majority of the assets are illiquid and would cause a significant loss of value upon a forced sale, and this is definately one of those cases.

Thanks in advance!

[Burke]

This is an area where I would suggest professional assistance. Both a CCIM (real estate professional with this commercial designation) or a certified appraiser (MAI) would be quite familiar with this procedure. You can find one in your area by accessing either website -- (www.ccim.com or www.appraisalinstitute.org.) NOI (net operating income of the property -- which is different from net taxable income) divided by the cap rate = market value. The higher the cap rate, the lower the market value.