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Last Updated: 6/19/2013

Qualified heirs and family members

Who qualifies as a “qualified heir” or family member?

A “qualified heir” means a family member who acquired qualified property from the decedent. A “family member” means the decedent’s:

  • spouse;

  • ancestor (parent, grandparent, etc.);

  • lineal descendant (child, grandchild, etc.), or a lineal descendant of the decedent’s spouse or parents, or the spouse of any of these descendants; or

  • a trust whose present beneficiaries are all family members.

Note: A decedent’s nieces or nephews do qualify as family members. But a decedent’s aunts, uncles, and cousins do not qualify.

 

Does a family member need to “materially participate” after they receive the property?

Yes. To receive the qualified small business property deduction, a family member must materially participate in the operation of the trade or business – as defined in Section 469(h) of the Internal Revenue Code – throughout the three year period after decedent’s death.

Note: Material participation in prior taxable years cannot substitute for material participation in the three years after the decedent’s death. Also, material participation is not a requirement for the qualified farm property deduction.
 

Will property be eligible for this deduction if received by a qualified heir, but maintained by a family member other than the qualified heir?

Yes. The requirements include that:

  1. The qualified heir received the property as a result of the decedent’s death; and
  2. A family member maintains the farm property 2a classification or materially participates in the small business property trade or business for three years after decedent’s death.

There is no requirement that the qualified heir be the same person as the family member

 

Who has to sign the election agreement to get this deduction?

The personal representative of the estate and all qualified heirs that received the property.