Form M706q - Election To Claim The Qualified Small Business And Farm Property Deduction - 2017 Page 7
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82017 Schedule M706Q Instructions
Purpose of Schedule M706Q
• If the deducted property is qualified small
qualified farm property deduction, the land
business property, a complete copy of the
cannot be owned by an entity that is pro-
Schedule M706Q allows the estate of a de-
business tax return, schedules, and attach-
hibited from owning agricultural land under
cedent dying in 2017 to make an election to
section 500.24 of Minnesota Statutes.
ments for the taxable year prior to the
deduct qualified small business or qualified
decedent’s death.
farm property from the Minnesota adjusted
Class 2a agricultural land consists of parcels
taxable estate. The deduction cannot exceed
of property, or portions thereof that are ag-
• If the deducted property is qualified small
$2,900,000 for estates of decedents dying in
ricultural land and buildings. Class 2a land
business property, an explanation as to how
2017. Qualified heirs must pay a recapture
may be homestead or non-homestead de-
the decedent materially participated in the
tax if a qualified heir fails to own the prop-
pending on ownership, occupancy, and active
qualified small business in the taxable year
erty or if a family member fails to use the
farming scenarios.
prior to death.
property for a qualified use during the three
To meet the requirements of qualified farm
• A copy of the decedent’s will, trust, probate
years after the decedent’s death.
property, the property must be classified as
distribution ruling, transfer on death deed
Who Should File
class 2a agricultural land. If the property
or other documentation that demonstrates to
has multiple property classifications and the
An estate may be eligible for this deduction
whom the qualified property is distributed
county assessor can practically separate the
if:
to upon death.
acreage of each classification type, then only
• the decedent died after June 30, 2011;
Assembly Required
the acreage that is attributable to class 2a can
• the estate is required to file Form M706;
See Form M706 instructions for details.
be claimed for the farm property deduction.
• the value of the Minnesota adjusted tax-
Line Instructions
To meet the requirements of qualified farm
able estate includes qualified small busi-
property, the property must be classified as
Part 1 - Qualified Small Business
ness or qualified farm property;
the agricultural homestead, agricultural rela-
Property Requirements
• for the small business property deduction,
tive homestead, or special agricultural home-
The estate must complete the federal Form
the estate and all qualified heirs agree
stead. If the property has multiple homestead
706 and Minnesota Form M706 to determine
that a family member will materially
classification and the county assessor can
if the value of the qualified property is includ-
participate in the operation of the trade
practically separate the acreage of each clas-
ed in the decedent’s federal adjusted taxable
or business for three years following the
sification type, then only the acreage that is
estate. The federal adjusted taxable estate is
decedent’s death;
attributable to the agricultural homestead,
after deductions, including debts, expenses
• for the farm property deduction, the estate
agricultural relative homestead, or special
and bequests to a surviving spouse.
and all qualified heirs agree that a family
agricultural homestead can be claimed for the
Material participation is described in sec-
member will maintain 2a property clas-
farm property deduction.”
tion 469 of the Internal Revenue Code. The
sification for three years following the
If the estate answers “no” to any of the ques-
existence of material participation is a factual
decedent’s death; and
tions in Part 2, stop here: the estate is not
determination that generally requires regular,
• the estate and all qualified heirs agree not
eligible to claim the farm property deduction.
continuous, and substantial involvement in the
to dispose of any interest in the qualified
If the estate answers “yes” to all questions in
operations of the trade or business activity. A
property other than to a family member
Part 2, the estate may be eligible to claim the
passive activity within the meaning of section
during the three years following the dece-
small business property deduction. Continue
469(c) of the Internal Revenue Code does not
dent’s death.
to Part 3.
constitute material participation.
When to File
(M.S. 291.03, subd. 10)
If the estate answers “no” to any of the ques-
File Schedule M706Q with Form M706.
tions in Part 1, stop here: the estate is not
Part 3 - Qualified Heirs and Family
eligible to claim the small business property
Members Requirements
Required Attachments
deduction. If the estate answers “yes” to all
A “family member” means:
You must attach the following to Form
questions in Part 1, the estate may be eligible
• an ancestor of the decedent (parent,
M706Q:
to claim the small business property deduc-
grandparent, etc.);
tion. Continue to Part 3.
• Documentation demonstrating decedent’s
• the decedent’s spouse;
continuous ownership of the qualified
(M.S. 291.03, subd. 9)
property for the three-year period prior to
• a lineal descendant (child, grandchild,
Part 2 - Qualified Farm Property
decedent’s death.
etc.) of the decedent, of the decedent’s
Requirements
spouse; or of the decedent’s parents;
• If the deducted property is qualified small
The estate must complete the federal Form
• the spouse of any lineal descendant de-
business property, a complete copy of
706 and Minnesota Form M706 to determine
scribed above; or
the decedent’s federal income tax return,
if the value of the qualified property is includ-
schedules, and attachments for the three
• a trust whose present beneficiaries are all
ed in the decedent’s federal adjusted taxable
taxable years ending prior to the dece-
family members.
estate. The federal adjusted taxable estate is
dent’s death (including the taxable year
after deductions, including debts, expenses
A decedent’s aunts, uncles, and cousins do
of death).
and bequests to a surviving spouse.
not qualify as family members. A decedent’s
• If the deducted property is qualified farm
Minnesota law, in general, bars corporations,
nieces or nephews, however, do qualify as
property, a copy of the decedent’s prop-
limited liability companies, pension or invest-
family members.
erty tax statements for the taxable year of
ment funds, trusts, and limited partnerships
A “qualified heir” means a family member
death.
from farming, owning, or leasing farmland in
who acquired qualified property upon the
Minnesota. To meet the requirements of the
death of the decedent.
Continued
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