Form M706q - Minnesota Election To Claim The Qualified Small Business And Farm Property Deduction - 2014 Page 7
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82014 Schedule M706Q Instructions
Purpose of Schedule
for the three taxable years ending prior
ment funds, trusts, and limited partnerships
to the decedent’s death (including the
from farming, owning, or leasing farmland in
M706Q
taxable year of death).
Minnesota. To meet the requirements of the
Schedule M706Q allows the estate of a de-
qualified farm property deduction, the land
•
If the deducted property is qualified
cedent dying after June 30, 2011 to make an
cannot be owned by an entity that is prohib-
small business property, an explanation
election to deduct qualified small business or
ited from owning agricultural land under
or summary as to how the decedent or
qualified farm property from the Minnesota
section 500.24 of Minnesota Statutes.
decedent’s spouse materially participated
adjusted taxable estate. The deduction cannot
in the trade or business in the taxable
Class 2a agricultural land consists of parcels
exceed $3,800,000 for estates of decedents
year before death (2013).
of property, or portions thereof that are agri-
dying in 2014. Qualified heirs must pay a
cultural land and buildings. Class 2a land may
recapture tax if a qualified heir fails to own
•
If the deducted property is qualified
the property or if a family member fails to
be homestead or non-homestead depending
farm property, a copy of the decedent’s
use the property for a qualified use during
on ownership, occupancy, and active farming
property tax statements for the taxable
the three years after the decedent’s death.
scenarios.
year of death.
Who Should File
To meet the requirements of qualified farm
Assembly Required
property, the property must be classified as
An estate may be eligible for this deduction if:
See Form M706 instructions for how to as-
class 2a agricultural land. If the property
•
the decedent died after June 30, 2011;
semble the required information.
has multiple property classifications and the
•
the estate is required to file Form M706;
county assessor can practically separate the
Line Instructions
•
the value of the Minnesota adjusted
acreage of each classification type, then only
taxable estate includes qualified small
Part 1 - Qualified Small Business
the acreage that is attributable to class 2a can
business or qualified farm property;
be claimed for the farm property deduction.
Property Requirements
•
for the small business property deduc-
The estate must complete the federal Form
To meet the requirements of qualified farm
tion, the estate and all qualified heirs
706 and Minnesota Form M706 to determine
property, the property must be classified as
agree that a family member will materi-
if the value of the qualified property is includ-
the agricultural homestead, agricultural rela-
ally participate in the operation of the
ed in the decedent’s federal adjusted taxable
tive homestead, or special agricultural home-
trade or business for three years follow-
estate. The federal adjusted taxable estate is
stead. If the property has multiple homestead
ing the decedent’s death;
after deductions, including debts, expenses
classification and the county assessor can
•
for the farm property deduction, the
and bequests to a surviving spouse.
practically separate the acreage of each clas-
estate and all qualified heirs agree that
Material participation is described in sec-
sification type, then only the acreage that is
a family member will maintain 2a
tion 469 of the Internal Revenue Code. The
attributable to the agricultural homestead,
property classification for three years
existence of material participation is a factual
agricultural relative homestead, or special
following the decedent’s death; and
determination that generally requires regular,
agricultural homestead can be claimed for the
•
the estate and all qualified heirs agree
continuous, and substantial involvement in
farm property deduction. ”
not to dispose of any interest in the
the operations of the trade or business activ-
If the estate answers “no” to any of the ques-
qualified property other than to a family
ity. A passive activity within the meaning of
tions in Part 2, stop here: the estate is not
member during the three years follow-
section 469(c) of the Internal Revenue Code
eligible to claim the farm property deduction.
ing the decedent’s death.
does not constitute material participation.
If the estate answers “yes” to all questions in
When to File
If the estate answers “no” to any of the ques-
Part 2, the estate may be eligible to claim the
tions in Part 1, stop here: the estate is not
File Schedule M706Q with Form M706.
small business property deduction. Continue
eligible to claim the small business property
to Part 3.
Required Attachments
deduction. If the estate answers “yes” to all
(M.S. 291.03, subd. 10)
questions in Part 1, the estate may be eligible
You must attach the following to Form
to claim the small business property deduc-
M706Q:
Part 3 - Qualified Heirs and Family
tion. Continue to Part 3.
•
Documentation demonstrating de-
Members Requirements
(M.S. 291.03, subd. 9)
cedent’s continuous ownership of the
A “family member” means:
qualified property for the three-year
•
an ancestor of the decedent (parent,
Part 2 - Qualified Farm Property
period prior to decedent’s death.
grandparent, etc.);
Requirements
•
A copy of the decedent’s will, trust,
•
the decedent’s spouse;
The estate must complete the federal Form
probate distrubtion ruling, transfer on
706 and Minnesota Form M706 to determine
•
a lineal descendant (child, grandchild,
death deed or other documentation that
if the value of the qualified property is includ-
etc.) of the decedent, of the decedent’s
demonstrates to whom the qualified
ed in the decedent’s federal adjusted taxable
spouse; or of the decedent’s parents;
property is to be distributed to upon
estate. The federal adjusted taxable estate is
death.
•
the spouse of any lineal descendant
after deductions, including debts, expenses
described above; or
•
If the deducted property is qualified
and bequests to a surviving spouse.
small business property, a complete
•
a trust whose present beneficiaries are all
Minnesota law, in general, bars corporations,
copy of the decedent’s federal income
family members.
limited liability companies, pension or invest-
tax return, schedules, and attachments
Continued
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