With the final completion of the Minnesota shutdown being resolved last month, some nice although somewhat complex changes to the estate tax law were made to help farmers. The federal tax law has a provision for farmers called special use valuation that allows a reduction in farmland value of up to about $1 million on an estate tax return. The new Minnesota law allows farmers with a taxable estate for Minnesota to exclude up to $4 million of value for farmland and farm operations. Most of the rules follow the federal rules, however, the definition of a farmer and farm and what may or may not qualify is still a little bit messy.
The farm has to be an agricultural homestead, but can include rural vacant land contiguous to the homestead. The decedent must have owned the property for at least three years prior to their passing. A family member must continue to farm for the following three years, or a recapture tax will apply. The recapture tax of 16% could be at a higher rate than what would have originally been due on the return.
The current taxable estate for Minnesota begins at $1 million, but with this additional exclusion, farmers and their heirs would probably be able to get the full current $5 million federal exclusion equivalent.
This exclusion is for farmers dying after June 30, 2011. If this may apply to your farm operation, make sure to review it with your professional Minnesota estate tax advisor. As you can see, some of the provisions of this law can be challenging to an estate, but in the right situation, it may save the farm family $400 thousand in tax or more.