field_block:node:page:title
Recapture Tax
field_block:node:page:body
Estates that claim the qualified small business property or qualified farm property deduction are subject to a three-year holding period.
If the qualified heirs do not meet certain requirements during this time, the estate is subject to a Recapture Tax.
The qualifying heirs must file a Recapture Tax return and pay the tax within six months of any change that breaks the holding period requirements. File return in the Estate Recapture Tax Online Filing System
The tax is equal to 16% of the value (as allowed for federal estate tax purposes) of qualified property ceasing to satisfy the three-year holding period requirements.
field_block:node:page:field_paragraph
For the estates that elected the qualified small business property deduction, the qualified heirs must do the following for the three years after death:
- A qualified heir must own all interest in the qualified property (a disposition to a qualified family member does not trigger Recapture Tax).
- A family member must materially participate in the operation of the trade for business.
For the estates that elected the qualified farm property deduction, the qualified heirs must do the following for the three years after death:
- A qualified heir must own all interest in the qualified property (a disposition to a qualified family member does not trigger Recapture Tax).
- The farm property must maintain the 2a (agricultural) classification for property tax purposes.
There are exceptions for the qualified farm property deduction. None of the following will trigger the Recapture Tax during the holding period:
- The farm property is acquired by a governmental unit through eminent domain for a public purpose.
- Part of the farm property (less than 1/5 of the claimed acreage) is reclassified for property taxes from 2a (agricultural) to 2b (rural vacant land), as long as the qualified heir has not substantially altered the property.
- Part of the farm property (consisting of a house, garage, and up to one acre of land) is reclassified for property taxes from 2a (agricultural) to 4bb (residential non-homestead).
