Estate tax deduction for farms

The following information provides a general explanation of the farm deduction.

You can deduct the value of farms and timberlands from the taxable value of an estate as long as certain requirements are met. This deduction applies to the land, farm structures, and farming equipment. It is an unlimited deduction. A tenant farmer may qualify for the farm deduction if the requirements are met. Farm property in a closely-held partnership, corporation, or trust can qualify for the deduction as long as all requirements are met.

An heir to the farm does not have to continue farming in order for the estate to take the deduction. The heir may discontinue using or sell the farming property after inheriting it.

If you are eligible to take the farm deduction:

Complete the Washington State Estate Tax Addendum # 2 – Property Used for Farming form. This addendum can be completed electronically if you file your return using our My DOR services.
Include a detailed statement how the estate qualifies for the deduction. The statement should address the requirements listed below and specifically describe the material participation in and define the farm property being used for the farming purpose.
Attach both items to the Washington State Estate and Transfer Tax Return.

Property used for farming

Property used for farming is any tangible personal property or real property used for a farming purpose.

Examples of “farm” include, but are not limited to:

Stock.
Dairy or furbearing animals.
Ranches.
Farmland.
Nurseries.
Greenhouses/other similar structures.
Orchards.
Woodlands.
Timber plantings.
Machinery/equipment.

Farming purpose

Can be any of the following:

Cultivating the soil.
Raising or harvesting any agricultural or horticultural commodity, including raising, shearing, feeding, caring for, training, and management of animals on a farm.
Handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of such commodity.
Planting, cultivating, caring for, or cutting of trees or the preparation, other than milling, of trees for market.

Requirements to take the farm deduction

General requirements to qualify for the farm deduction

All of the following conditions must be met:

At the time of death, the decedent must have been a citizen or resident of the United States.
The farm property must pass to or be acquired by a qualified heir from the decedent.
The farm property must have been used for a qualifying use (farm property used for a farming purpose) at the time of the decedent's death.
The decedent or a member of the decedent’s family must have used the farm property at the time of the decedent's death.
The farm property must make up at least 50% of the total estate's adjusted gross value. The estate’s adjusted gross value is the total gross estate less any mortgages or indebtedness on such farm property.

Some farm assets have requirements beyond this list. Those assets and their additional requirements are discussed in the sections below.

Special requirements for real property

In order for real property to qualify for the farm deduction, additional requirements must be met. Real property can include, but is not limited to land, barns, or ranch houses. Land and barns also have additional requirements listed in the section below.

During the eight-year period ending on the date of the decedent’s death there have been periods aggregating five years or more during which all of the following were true:
- The decedent or a member of the decedent’s family owned the real property.
- The real property was used for a qualified use by the decedent or a member of the decedent’s family.
- There was material participation by the decedent or a member of the decedent’s family.

Special requirements for some real property

Certain real property has an additional special requirement to qualify for the farm deduction. These qualified real property types can include land or barns, but do not include ranch houses.

The specific real property must make up 25% or more of the adjusted gross value of the estate, and during the eight-year period ending on the date of the decedent’s death there have been periods aggregating five years or more during which all of the following were true:
- The decedent or a member of the decedent’s family owned the real property.
- The real property was used for a qualified use by the decedent or a member of the decedent’s family.
- There was material participation by the decedent or a member of the decedent’s family.

Note: If the requirements listed above are not met in respect to farm property, the property does not qualify for the farm deduction.

Member of the decedent's family definition

A "member of the decedent's family" means any of the following:

An ancestor of an individual.
A spouse or state registered domestic partner of an individual.
A lineal descendant of the:
- Individual.
- Individual's spouse or state registered domestic partner.
- A parent of the individual.
A spouse of any lineal descendant.
A legally adopted child of an individual.

For additional information, see RCW 83.100.046 or WAC 458-57-155.