26 U.S.C. § 2032A : US Code - Section 2032A: Valuation of certain farm, etc., real property

    (a) Value based on use under which property qualifies
      (1) General rule
        If - 
          (A) the decedent was (at the time of his death) a citizen or
        resident of the United States, and
          (B) the executor elects the application of this section and
        files the agreement referred to in subsection (d)(2),

      then, for purposes of this chapter, the value of qualified real
      property shall be its value for the use under which it qualifies,
      under subsection (b), as qualified real property.
      (2) Limitation on aggregate reduction in fair market value
        The aggregate decrease in the value of qualified real property
      taken into account for purposes of this chapter which results
      from the application of paragraph (1) with respect to any
      decedent shall not exceed $750,000.
      (3) Inflation adjustment
        In the case of estates of decedents dying in a calendar year
      after 1998, the $750,000 amount contained in paragraph (2) shall
      be increased by an amount equal to - 
          (A) $750,000, multiplied by
          (B) the cost-of-living adjustment determined under section
        1(f)(3) for such calendar year by substituting "calendar year
        1997" for "calendar year 1992" in subparagraph (B) thereof.

      If any amount as adjusted under the preceding sentence is not a
      multiple of $10,000, such amount shall be rounded to the next
      lowest multiple of $10,000.
    (b) Qualified real property
      (1) In general
        For purposes of this section, the term "qualified real
      property" means real property located in the United States which
      was acquired from or passed from the decedent to a qualified heir
      of the decedent and which, on the date of the decedent's death,
      was being used for a qualified use by the decedent or a member of
      the decedent's family, but only if - 
          (A) 50 percent or more of the adjusted value of the gross
        estate consists of the adjusted value of real or personal
        property which - 
            (i) on the date of the decedent's death, was being used for
          a qualified use by the decedent or a member of the decedent's
          family, and
            (ii) was acquired from or passed from the decedent to a
          qualified heir of the decedent.

          (B) 25 percent or more of the adjusted value of the gross
        estate consists of the adjusted value of real property which
        meets the requirements of subparagraphs (A)(ii) and (C),
          (C) during the 8-year period ending on the date of the
        decedent's death there have been periods aggregating 5 years or
        more during which - 
            (i) such real property was owned by the decedent or a
          member of the decedent's family and used for a qualified use
          by the decedent or a member of the decedent's family, and
            (ii) there was material participation by the decedent or a
          member of the decedent's family in the operation of the farm
          or other business, and

          (D) such real property is designated in the agreement
        referred to in subsection (d)(2).
      (2) Qualified use
        For purposes of this section, the term "qualified use" means
      the devotion of the property to any of the following:
          (A) use as a farm for farming purposes, or
          (B) use in a trade or business other than the trade or
        business of farming.
      (3) Adjusted value
        For purposes of paragraph (1), the term "adjusted value" means -
       
          (A) in the case of the gross estate, the value of the gross
        estate for purposes of this chapter (determined without regard
        to this section), reduced by any amounts allowable as a
        deduction under paragraph (4) of section 2053(a), or
          (B) in the case of any real or personal property, the value
        of such property for purposes of this chapter (determined
        without regard to this section), reduced by any amounts
        allowable as a deduction in respect of such property under
        paragraph (4) of section 2053(a).
      (4) Decedents who are retired or disabled
        (A) In general
          If, on the date of the decedent's death, the requirements of
        paragraph (1)(C)(ii) with respect to the decedent for any
        property are not met, and the decedent - 
            (i) was receiving old-age benefits under title II of the
          Social Security Act for a continuous period ending on such
          date, or
            (ii) was disabled for a continuous period ending on such
          date,

        then paragraph (1)(C)(ii) shall be applied with respect to such
        property by substituting "the date on which the longer of such
        continuous periods began" for "the date of the decedent's
        death" in paragraph (1)(C).
        (B) Disabled defined
          For purposes of subparagraph (A), an individual shall be
        disabled if such individual has a mental or physical impairment
        which renders him unable to materially participate in the
        operation of the farm or other business.
        (C) Coordination with recapture
          For purposes of subsection (c)(6)(B)(i), if the requirements
        of paragraph (1)(C)(ii) are met with respect to any decedent by
        reason of subparagraph (A), the period ending on the date on
        which the continuous period taken into account under
        subparagraph (A) began shall be treated as the period
        immediately before the decedent's death.
      (5) Special rules for surviving spouses
        (A) In general
          If property is qualified real property with respect to a
        decedent (hereinafter in this paragraph referred to as the
        "first decedent") and such property was acquired from or passed
        from the first decedent to the surviving spouse of the first
        decedent, for purposes of applying this subsection and
        subsection (c) in the case of the estate of such surviving
        spouse, active management of the farm or other business by the
        surviving spouse shall be treated as material participation by
        such surviving spouse in the operation of such farm or
        business.
        (B) Special rule
          For the purposes of subparagraph (A), the determination of
        whether property is qualified real property with respect to the
        first decedent shall be made without regard to subparagraph (D)
        of paragraph (1) and without regard to whether an election
        under this section was made.
        (C) Coordination with paragraph (4)
          In any case in which to do so will enable the requirements of
        paragraph (1)(C)(ii) to be met with respect to the surviving
        spouse, this subsection and subsection (c) shall be applied by
        taking into account any application of paragraph (4).
    (c) Tax treatment of dispositions and failures to use for qualified
      use
      (1) Imposition of additional estate tax
        If, within 10 years after the decedent's death and before the
      death of the qualified heir - 
          (A) the qualified heir disposes of any interest in qualified
        real property (other than by a disposition to a member of his
        family), or
          (B) the qualified heir ceases to use for the qualified use
        the qualified real property which was acquired (or passed) from
        the decedent,

      then, there is hereby imposed an additional estate tax.
      (2) Amount of additional tax
        (A) In general
          The amount of the additional tax imposed by paragraph (1)
        with respect to any interest shall be the amount equal to the
        lesser of - 
            (i) the adjusted tax difference attributable to such
          interest, or
            (ii) the excess of the amount realized with respect to the
          interest (or, in any case other than a sale or exchange at
          arm's length, the fair market value of the interest) over the
          value of the interest determined under subsection (a).
        (B) Adjusted tax difference attributable to interest
          For purposes of subparagraph (A), the adjusted tax difference
        attributable to an interest is the amount which bears the same
        ratio to the adjusted tax difference with respect to the estate
        (determined under subparagraph (C)) as - 
            (i) the excess of the value of such interest for purposes
          of this chapter (determined without regard to subsection (a))
          over the value of such interest determined under subsection
          (a), bears to
            (ii) a similar excess determined for all qualified real
          property.
        (C) Adjusted tax difference with respect to the estate
          For purposes of subparagraph (B), the term "adjusted tax
        difference with respect to the estate" means the excess of what
        would have been the estate tax liability but for subsection (a)
        over the estate tax liability. For purposes of this
        subparagraph, the term "estate tax liability" means the tax
        imposed by section 2001 reduced by the credits allowable
        against such tax.
        (D) Partial dispositions
          For purposes of this paragraph, where the qualified heir
        disposes of a portion of the interest acquired by (or passing
        to) such heir (or a predecessor qualified heir) or there is a
        cessation of use of such a portion - 
            (i) the value determined under subsection (a) taken into
          account under subparagraph (A)(ii) with respect to such
          portion shall be its pro rata share of such value of such
          interest, and
            (ii) the adjusted tax difference attributable to the
          interest taken into account with respect to the transaction
          involving the second or any succeeding portion shall be
          reduced by the amount of the tax imposed by this subsection
          with respect to all prior transactions involving portions of
          such interest.
        (E) Special rule for disposition of timber
          In the case of qualified woodland to which an election under
        subsection (e)(13)(A) applies, if the qualified heir disposes
        of (or severs) any standing timber on such qualified woodland -
        
            (i) such disposition (or severance) shall be treated as a
          disposition of a portion of the interest of the qualified
          heir in such property, and
            (ii) the amount of the additional tax imposed by paragraph
          (1) with respect to such disposition shall be an amount equal
          to the lesser of - 
              (I) the amount realized on such disposition (or, in any
            case other than a sale or exchange at arm's length, the
            fair market value of the portion of the interest disposed
            or severed), or
              (II) the amount of additional tax determined under this
            paragraph (without regard to this subparagraph) if the
            entire interest of the qualified heir in the qualified
            woodland had been disposed of, less the sum of the amount
            of the additional tax imposed with respect to all prior
            transactions involving such woodland to which this
            subparagraph applied.

        For purposes of the preceding sentence, the disposition of a
        right to sever shall be treated as the disposition of the
        standing timber. The amount of additional tax imposed under
        paragraph (1) in any case in which a qualified heir disposes of
        his entire interest in the qualified woodland shall be reduced
        by any amount determined under this subparagraph with respect
        to such woodland.
      (3) Only 1 additional tax imposed with respect to any 1 portion
        In the case of an interest acquired from (or passing from) any
      decedent, if subparagraph (A) or (B) of paragraph (1) applies to
      any portion of an interest, subparagraph (B) or (A), as the case
      may be, of paragraph (1) shall not apply with respect to the same
      portion of such interest.
      (4) Due date
        The additional tax imposed by this subsection shall become due
      and payable on the day which is 6 months after the date of the
      disposition or cessation referred to in paragraph (1).
      (5) Liability for tax; furnishing of bond
        The qualified heir shall be personally liable for the
      additional tax imposed by this subsection with respect to his
      interest unless the heir has furnished bond which meets the
      requirements of subsection (e)(11).
      (6) Cessation of qualified use
        For purposes of paragraph (1)(B), real property shall cease to
      be used for the qualified use if - 
          (A) such property ceases to be used for the qualified use set
        forth in subparagraph (A) or (B) of subsection (b)(2) under
        which the property qualified under subsection (b), or
          (B) during any period of 8 years ending after the date of the
        decedent's death and before the date of the death of the
        qualified heir, there had been periods aggregating more than 3
        years during which - 
            (i) in the case of periods during which the property was
          held by the decedent, there was no material participation by
          the decedent or any member of his family in the operation of
          the farm or other business, and
            (ii) in the case of periods during which the property was
          held by any qualified heir, there was no material
          participation by such qualified heir or any member of his
          family in the operation of the farm or other business.
      (7) Special rules
        (A) No tax if use begins within 2 years
          If the date on which the qualified heir begins to use the
        qualified real property (hereinafter in this subparagraph
        referred to as the commencement date) is before the date 2
        years after the decedent's death - 
            (i) no tax shall be imposed under paragraph (1) by reason
          of the failure by the qualified heir to so use such property
          before the commencement date, and
            (ii) the 10-year period under paragraph (1) shall be
          extended by the period after the decedent's death and before
          the commencement date.
        (B) Active management by eligible qualified heir treated as
          material participation
          For purposes of paragraph (6)(B)(ii), the active management
        of a farm or other business by - 
            (i) an eligible qualified heir, or
            (ii) a fiduciary of an eligible qualified heir described in
          clause (ii) or (iii) of subparagraph (C),

        shall be treated as material participation by such eligible
        qualified heir in the operation of such farm or business. In
        the case of an eligible qualified heir described in clause
        (ii), (iii), or (iv) of subparagraph (C), the preceding
        sentence shall apply only during periods during which such heir
        meets the requirements of such clause.
        (C) Eligible qualified heir
          For purposes of this paragraph, the term "eligible qualified
        heir" means a qualified heir who - 
            (i) is the surviving spouse of the decedent,
            (ii) has not attained the age of 21,
            (iii) is disabled (within the meaning of subsection
          (b)(4)(B)), or
            (iv) is a student.
        (D) Student
          For purposes of subparagraph (C), an individual shall be
        treated as a student with respect to periods during any
        calendar year if (and only if) such individual is a student
        (within the meaning of section 152(f)(2)) for such calendar
        year.
        (E) Certain rents treated as qualified use
          For purposes of this subsection, a surviving spouse or lineal
        descendant of the decedent shall not be treated as failing to
        use qualified real property in a qualified use solely because
        such spouse or descendant rents such property to a member of
        the family of such spouse or descendant on a net cash basis.
        For purposes of the preceding sentence, a legally adopted child
        of an individual shall be treated as the child of such
        individual by blood.
      (8) Qualified conservation contribution is not a disposition
        A qualified conservation contribution (as defined in section
      170(h)) by gift or otherwise shall not be deemed a disposition
      under subsection (c)(1)(A).
    (d) Election; agreement
      (1) Election
        The election under this section shall be made on the return of
      the tax imposed by section 2001. Such election shall be made in
      such manner as the Secretary shall by regulations prescribe. Such
      an election, once made, shall be irrevocable.
      (2) Agreement
        The agreement referred to in this paragraph is a written
      agreement signed by each person in being who has an interest
      (whether or not in possession) in any property designated in such
      agreement consenting to the application of subsection (c) with
      respect to such property.
      (3) Modification of election and agreement to be permitted
        The Secretary shall prescribe procedures which provide that in
      any case in which the executor makes an election under paragraph
      (1) (and submits the agreement referred to in paragraph (2))
      within the time prescribed therefor, but - 
          (A) the notice of election, as filed, does not contain all
        required information, or
          (B) signatures of 1 or more persons required to enter into
        the agreement described in paragraph (2) are not included on
        the agreement as filed, or the agreement does not contain all
        required information,

      the executor will have a reasonable period of time (not exceeding
      90 days) after notification of such failures to provide such
      information or signatures.
    (e) Definitions; special rules
      For purposes of this section - 
      (1) Qualified heir
        The term "qualified heir" means, with respect to any property,
      a member of the decedent's family who acquired such property (or
      to whom such property passed) from the decedent. If a qualified
      heir disposes of any interest in qualified real property to any
      member of his family, such member shall thereafter be treated as
      the qualified heir with respect to such interest.
      (2) Member of family
        The term "member of the family" means, with respect to any
      individual, only - 
          (A) an ancestor of such individual,
          (B) the spouse of such individual,
          (C) a lineal descendant of such individual, of such
        individual's spouse, or of a parent of such individual, or
          (D) the spouse of any lineal descendant described in
        subparagraph (C).

      For purposes of the preceding sentence, a legally adopted child
      of an individual shall be treated as the child of such individual
      by blood.
      (3) Certain real property included
        In the case of real property which meets the requirements of
      subparagraph (C) of subsection (b)(1), residential buildings and
      related improvements on such real property occupied on a regular
      basis by the owner or lessee of such real property or by persons
      employed by such owner or lessee for the purpose of operating or
      maintaining such real property, and roads, buildings, and other
      structures and improvements functionally related to the qualified
      use shall be treated as real property devoted to the qualified
      use.
      (4) Farm
        The term "farm" includes stock, dairy, poultry, fruit,
      furbearing animal, and truck farms, plantations, ranches,
      nurseries, ranges, greenhouses or other similar structures used
      primarily for the raising of agricultural or horticultural
      commodities, and orchards and woodlands.
      (5) Farming purposes
        The term "farming purposes" means - 
          (A) cultivating the soil or raising or harvesting any
        agricultural or horticultural commodity (including the raising,
        shearing, feeding, caring for, training, and management of
        animals) on a farm;
          (B) 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
        the commodity so treated; and
          (C)(i) the planting, cultivating, caring for, or cutting of
        trees, or
          (ii) the preparation (other than milling) of trees for
        market.
      (6) Material participation
        Material participation shall be determined in a manner similar
      to the manner used for purposes of paragraph (1) of section
      1402(a) (relating to net earnings from self-employment).
      (7) Method of valuing farms
        (A) In general
          Except as provided in subparagraph (B), the value of a farm
        for farming purposes shall be determined by dividing - 
            (i) the excess of the average annual gross cash rental for
          comparable land used for farming purposes and located in the
          locality of such farm over the average annual State and local
          real estate taxes for such comparable land, by
            (ii) the average annual effective interest rate for all new
          Federal Land Bank loans.

        For purposes of the preceding sentence, each average annual
        computation shall be made on the basis of the 5 most recent
        calendar years ending before the date of the decedent's death.
        (B) Value based on net share rental in certain cases
          (i) In general
            If there is no comparable land from which the average
          annual gross cash rental may be determined but there is
          comparable land from which the average net share rental may
          be determined, subparagraph (A)(i) shall be applied by
          substituting "average annual net share rental" for "average
          annual gross cash rental".
          (ii) Net share rental
            For purposes of this paragraph, the term "net share rental"
          means the excess of - 
              (I) the value of the produce received by the lessor of
            the land on which such produce is grown, over
              (II) the cash operating expenses of growing such produce
            which, under the lease, are paid by the lessor.
        (C) Exception
          The formula provided by subparagraph (A) shall not be used - 
            (i) where it is established that there is no comparable
          land from which the average annual gross cash rental may be
          determined, or
            (ii) where the executor elects to have the value of the
          farm for farming purposes determined and that there is no
          comparable land from which the average net share rental may
          be determined under paragraph (8).
      (8) Method of valuing closely held business interests, etc.
        In any case to which paragraph (7)(A) does not apply, the
      following factors shall apply in determining the value of any
      qualified real property:
          (A) The capitalization of income which the property can be
        expected to yield for farming or closely held business purposes
        over a reasonable period of time under prudent management using
        traditional cropping patterns for the area, taking into account
        soil capacity, terrain configuration, and similar factors,
          (B) The capitalization of the fair rental value of the land
        for farm land or closely held business purposes,
          (C) Assessed land values in a State which provides a
        differential or use value assessment law for farmland or
        closely held business,
          (D) Comparable sales of other farm or closely held business
        land in the same geographical area far enough removed from a
        metropolitan or resort area so that nonagricultural use is not
        a significant factor in the sales price, and
          (E) Any other factor which fairly values the farm or closely
        held business value of the property.
      (9) Property acquired from decedent
        Property shall be considered to have been acquired from or to
      have passed from the decedent if - 
          (A) such property is so considered under section 1014(b)
        (relating to basis of property acquired from a decedent),
          (B) such property is acquired by any person from the estate,
        or
          (C) such property is acquired by any person from a trust (to
        the extent such property is includible in the gross estate of
        the decedent).
      (10) Community property
        If the decedent and his surviving spouse at any time held
      qualified real property as community property, the interest of
      the surviving spouse in such property shall be taken into account
      under this section to the extent necessary to provide a result
      under this section with respect to such property which is
      consistent with the result which would have obtained under this
      section if such property had not been community property.
      (11) Bond in lieu of personal liability
        If the qualified heir makes written application to the
      Secretary for determination of the maximum amount of the
      additional tax which may be imposed by subsection (c) with
      respect to the qualified heir's interest, the Secretary (as soon
      as possible, and in any event within 1 year after the making of
      such application) shall notify the heir of such maximum amount.
      The qualified heir, on furnishing a bond in such amount and for
      such period as may be required, shall be discharged from personal
      liability for any additional tax imposed by subsection (c) and
      shall be entitled to a receipt or writing showing such discharge.
      (12) Active management
        The term "active management" means the making of the management
      decisions of a business (other than the daily operating
      decisions).
      (13) Special rules for woodlands
        (A) In general
          In the case of any qualified woodland with respect to which
        the executor elects to have this subparagraph apply, trees
        growing on such woodland shall not be treated as a crop.
        (B) Qualified woodland
          The term "qualified woodland" means any real property which -
        
            (i) is used in timber operations, and
            (ii) is an identifiable area of land such as an acre or
          other area for which records are normally maintained in
          conducting timber operations.
        (C) Timber operations
          The term "timber operations" means - 
            (i) the planting, cultivating, caring for, or cutting of
          trees, or
            (ii) the preparation (other than milling) of trees for
          market.
        (D) Election
          An election under subparagraph (A) shall be made on the
        return of the tax imposed by section 2001. Such election shall
        be made in such manner as the Secretary shall by regulations
        prescribe. Such an election, once made, shall be irrevocable.
      (14) Treatment of replacement property acquired in section 1031
        or 1033 transactions
        (A) In general
          In the case of any qualified replacement property, any period
        during which there was ownership, qualified use, or material
        participation with respect to the replaced property by the
        decedent or any member of his family shall be treated as a
        period during which there was such ownership, use, or material
        participation (as the case may be) with respect to the
        qualified replacement property.
        (B) Limitation
          Subparagraph (A) shall not apply to the extent that the fair
        market value of the qualified replacement property (as of the
        date of its acquisition) exceeds the fair market value of the
        replaced property (as of the date of its disposition).
        (C) Definitions
          For purposes of this paragraph - 
          (i) Qualified replacement property
            The term "qualified replacement property" means any real
          property which is - 
              (I) acquired in an exchange which qualifies under section
            1031, or
              (II) the acquisition of which results in the
            nonrecognition of gain under section 1033.

          Such term shall only include property which is used for the
          same qualified use as the replaced property was being used
          before the exchange.
          (ii) Replaced property
            The term "replaced property" means - 
              (I) the property transferred in the exchange which
            qualifies under section 1031, or
              (II) the property compulsorily or involuntarily converted
            (within the meaning of section 1033).
    (f) Statute of limitations
      If qualified real property is disposed of or ceases to be used
    for a qualified use, then - 
        (1) the statutory period for the assessment of any additional
      tax under subsection (c) attributable to such disposition or
      cessation shall not expire before the expiration of 3 years from
      the date the Secretary is notified (in such manner as the
      Secretary may by regulations prescribe) of such disposition or
      cessation (or if later in the case of an involuntary conversion
      or exchange to which subsection (h) or (i) applies, 3 years from
      the date the Secretary is notified of the replacement of the
      converted property or of an intention not to replace or of the
      exchange of property), and
        (2) such additional tax may be assessed before the expiration
      of such 3-year period notwithstanding the provisions of any other
      law or rule of law which would otherwise prevent such assessment.
    (g) Application of this section and section 6324B to interests in
      partnerships, corporations, and trusts
      The Secretary shall prescribe regulations setting forth the
    application of this section and section 6324B in the case of an
    interest in a partnership, corporation, or trust which, with
    respect to the decedent, is an interest in a closely held business
    (within the meaning of paragraph (1) of section 6166(b)). For
    purposes of the preceding sentence, an interest in a discretionary
    trust all the beneficiaries of which are qualified heirs shall be
    treated as a present interest.
    (h) Special rules for involuntary conversions of qualified real
      property
      (1) Treatment of converted property
        (A) In general
          If there is an involuntary conversion of an interest in
        qualified real property - 
            (i) no tax shall be imposed by subsection (c) on such
          conversion if the cost of the qualified replacement property
          equals or exceeds the amount realized on such conversion, or
            (ii) if clause (i) does not apply, the amount of the tax
          imposed by subsection (c) on such conversion shall be the
          amount determined under subparagraph (B).
        (B) Amount of tax where there is not complete reinvestment
          The amount determined under this subparagraph with respect to
        any involuntary conversion is the amount of the tax which (but
        for this subsection) would have been imposed on such conversion
        reduced by an amount which - 
            (i) bears the same ratio to such tax, as
            (ii) the cost of the qualified replacement property bears
          to the amount realized on the conversion.
      (2) Treatment of replacement property
        For purposes of subsection (c) - 
          (A) any qualified replacement property shall be treated in
        the same manner as if it were a portion of the interest in
        qualified real property which was involuntarily converted;
        except that with respect to such qualified replacement property
        the 10-year period under paragraph (1) of subsection (c) shall
        be extended by any period, beyond the 2-year period referred to
        in section 1033(a)(2)(B)(i), during which the qualified heir
        was allowed to replace the qualified real property,
          (B) any tax imposed by subsection (c) on the involuntary
        conversion shall be treated as a tax imposed on a partial
        disposition, and
          (C) paragraph (6) of subsection (c) shall be applied - 
            (i) by not taking into account periods after the
          involuntary conversion and before the acquisition of the
          qualified replacement property, and
            (ii) by treating material participation with respect to the
          converted property as material participation with respect to
          the qualified replacement property.
      (3) Definitions and special rules
        For purposes of this subsection - 
        (A) Involuntary conversion
          The term "involuntary conversion" means a compulsory or
        involuntary conversion within the meaning of section 1033.
        (B) Qualified replacement property
          The term "qualified replacement property" means - 
            (i) in the case of an involuntary conversion described in
          section 1033(a)(1), any real property into which the
          qualified real property is converted, or
            (ii) in the case of an involuntary conversion described in
          section 1033(a)(2), any real property purchased by the
          qualified heir during the period specified in section
          1033(a)(2)(B) for purposes of replacing the qualified real
          property.

      Such term only includes property which is to be used for the
      qualified use set forth in subparagraph (A) or (B) of subsection
      (b)(2) under which the qualified real property qualified under
      subsection (a).
      (4) Certain rules made applicable
        The rules of the last sentence of section 1033(a)(2)(A) shall
      apply for purposes of paragraph (3)(B)(ii).
    (i) Exchanges of qualified real property
      (1) Treatment of property exchanged
        (A) Exchanges solely for qualified exchange property
          If an interest in qualified real property is exchanged solely
        for an interest in qualified exchange property in a transaction
        which qualifies under section 1031, no tax shall be imposed by
        subsection (c) by reason of such exchange.
        (B) Exchanges where other property received
          If an interest in qualified real property is exchanged for an
        interest in qualified exchange property and other property in a
        transaction which qualifies under section 1031, the amount of
        the tax imposed by subsection (c) by reason of such exchange
        shall be the amount of tax which (but for this subparagraph)
        would have been imposed on such exchange under subsection
        (c)(1), reduced by an amount which - 
            (i) bears the same ratio to such tax, as
            (ii) the fair market value of the qualified exchange
          property bears to the fair market value of the qualified real
          property exchanged.

        For purposes of clause (ii) of the preceding sentence, fair
        market value shall be determined as of the time of the
        exchange.
      (2) Treatment of qualified exchange property
        For purposes of subsection (c) - 
          (A) any interest in qualified exchange property shall be
        treated in the same manner as if it were a portion of the
        interest in qualified real property which was exchanged,
          (B) any tax imposed by subsection (c) by reason of the
        exchange shall be treated as a tax imposed on a partial
        disposition, and
          (C) paragraph (6) of subsection (c) shall be applied by
        treating material participation with respect to the exchanged
        property as material participation with respect to the
        qualified exchange property.
      (3) Qualified exchange property
        For purposes of this subsection, the term "qualified exchange
      property" means real property which is to be used for the
      qualified use set forth in subparagraph (A) or (B) of subsection
      (b)(2) under which the real property exchanged therefor
      originally qualified under subsection (a).