The Qualified Small Business Deduction (“QSBD”) under Minn. Stat. § 291.03, provides an additional deduction for Minnesota estate tax purposes for the value of qualified small business property passing to a qualified heir. The statute was originally enacted in 2011 (and has subsequently been updated).
The deduction aims to close the gap between $5,000,000.00 and the Minnesota estate tax exemption amount.
The deduction is difficult to obtain as the requirements to qualify as small business property are quite specific and all eight requirements must be satisfied. Among the eight requirements are the following which often present problems in obtaining the QSBD:
- The property must consist of assets of a trade, business, share of stock or other ownership interest in a corporation or entity engaged in a trade or business.
- During the taxable year that ended before the decedent’s death, the trade or business must not have been a passive activity and the decedent or the decedent’s spouse must have materially participated in the trade or business.
- For the three years following the date of death of the decedent, the trade or business is not a passive activity and a family member materially participates in the operation of the trade or business.