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Last Updated: 6/19/2013

Qualified Small Business Property and Farm Property Deductions

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A law passed during the 2013 legislative session clarifies the qualified small business and farm property deduction for estates of those who died after June 30, 2011. The deduction from the Minnesota adjusted taxable estate is available if the decedent owned qualified small business or farm property and passed that property to a qualified heir.

This deduction is capped at $4 million and subject to other requirements for three years after the decedent’s death. The qualified heir must pay a “recapture tax” if any of the following occur in that time:

  • The qualified heir sells or transfers any interest in the property to someone who is not a family member.

  • For qualified small business property, a family member does not “materially participate” in the operation of the business or trade; or

  • For qualified farm property, a family member does not maintain the class 2a agricultural property classification.

To claim the deduction, the executor and qualified heirs must complete Schedule M706Q, Election to Claim the Qualified Small Business and Farm Property Deduction. File the schedule with the Estate Tax return.

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