OAR 150-316-0625: (Miscellaneous) Valuation of Forest Land or “Farm Use” Land for Oregon Inheritance Tax Purposes

(1) Real property appraised under ORS 308.370 as land for farm use and passing by reason of death, is valued for purposes of Oregon inheritance tax as farm use land and the value used is the same as appraised for ad valorem purposes. ORS 308.370 provides for the assessment of farmland as “farm use” rather than “the highest and best use.” See OAR 150-118.155. (2) For deaths occurring on or after October 3, 1979, land which received special assessment as forest land or land classified under the Western Oregon small tract option tax law is valued as provided in ORS 118.155(3) and (4). (3) The valuation for Oregon inheritance tax purposes may not be the same as the valuation for federal estate tax purposes. The difference in values may result in a required modification under this section. Federal will value the land at fair market value upon the date of death of the decedent under IRC Section 1014 or the alternate valuation date under IRC Section 2032. (4) If the real property is subsequently disposed of, the difference in taxable gain or loss computed from the disposition using the federal valuation and the taxable gain or loss that would have been computed using the valuation for Oregon inheritance tax purposes, must be added to federal taxable income as gain or reduction of loss. The addition to a fiduciary return is not included as part of the fiduciary adjustment. It is a separate adjustment to federal net income of the fiduciary. In the case of forest land and Western Oregon small tract option land, the addition is applicable only to dispositions occurring on or after November 1, 1981. (5) The adjustment to federal taxable income is required not only when gain or loss is realized by the beneficiary on the inherited property, but is also required when: (a) Gain or loss is realized on other property which, in the computation of its basis, the basis of the inherited property is used. Examples of this type of property is that received as a result of a fully or partially nontaxed exchange or involuntary conversion where there has been a proper reinvestment. (b) A taxpayer, other than the beneficiary, may realize gain or loss on the disposition of inherited property, or property the basis of which is computed in whole or in part with respect to such inherited property, when the basis of the beneficiary is used. For example: property under this section received as a gift from a donor who acquired it by inheritance. The adjustment must be made to the donee’s tax return at the time the donee disposes of the property in a manner that results in a taxable event. (6) This rule applies to gains and losses from disposition of property acquired from a decedent, or from property the basis of which is computed in whole or in part with respect to property acquired from a decedent, whose death occurred before January 1, 1987.