Under current law, a 16% recapture tax applies to the amount of the estate tax subtraction claimed for qualified small business and qualified farm property if the property ceases to qualify for the subtraction in the three-year holding period after a decedent’s date of death.

This bill provides a temporary special rule for the recapture tax that applies to estates claiming the subtraction for qualified property. The rule is limited to estates that filed a return reporting no tax liability and also claimed a qualified property treatment, which is triggering recapture tax. The rule limits the amount of the qualified property exclusion or subtraction (i.e., amount that triggers recapture tax) to the amount necessary to reduce the estate tax to zero. The commissioner must establish a process for estates to claim refunds. Refunds must be filed before January 1, 2021. Effective retroactively for estates of decedents dying after December 31, 2011 and before January 1, 2017.