On August 2, the Treasury Department proposed regulations regarding the valuation of interests in family-owned businesses for estate and gift tax purposes. Generally, they target intra-family transfers and valuation discounts that result from certain lapsing rights and restrictions on liquidations. The regulations would restrict some of these valuation discounts - resulting in greater estate tax liability for closely held family businesses, as well as imposing new risks when it comes to the continuity of family-owned real estate businesses.
Treasury is ultimately looking to limit valuation discounts of interests in family owned businesses so that they may become subject to the estate tax. Under current law, estate tax exclusion is $5.45 million or $10.9 million per couple. Valuation discounts may enable ownership interests to fall short of these thresholds, enabling estates to be shielded from liability. A limitation on valuation discounts could cause estates to become subject to tax liability or further increases taxes owed.
The regulations are proposed to apply to lapses of rights or transfers of property subject to restrictions created after October 8, 1990, occurring on or after the date these regulations are finalized. A final regulation could be released as soon as later this year following a comment period.
NMHC/NAA will be working with industry partners to submit detailed comments to the Treasury Department focused on the negative impact these regulations could have on the multifamily and commercial real estate. We would be interested in learning about any reaction our members may have to these proposed regulations and their impact on business operations.
- Stepped-Up Basis and Taxation of Unrealized Capital Gains Fact Sheet
- Estate Tax
- Trade Group Coalition Letter to House Ways and Means Committee Opposing Proposed Tax Increases
- Family Business Estate Tax Coalition Letter Expressing Support for Stepped-Up Basis
- Family Business Estate Tax Coalition Letter in Support of Thune Amendment 3106