Goodbye to Discounts?

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By Eva Lang -

On January 9, 2009 Representative Pomeroy of North Dakota introduced HR 436 which provides for, amongst other things, repeal of carryover basis and retaining the estate tax with a $3,500,000 exemption. This Bill has been referred to the House Ways and Means Committee.

The bill also contains a provision disallowing valuation discounts for transfers for interests in entities (such as LLCs and corporations) containing "nonbusiness assets." This is aimed at preventing the use of family limited partnerships and limited liability companies (which are not true operating businesses - holding marketable securities, for example) for discounted transfers to younger family members. This would eliminate a common and highly effective method for gift and estate tax reduction, but LLCs would continue to be an excellent tool for asset protection. The effective date of this portion of the Act would be the date of enactment. (North Carolina Estate Planning Blog)

Rep. Pomeroy's bill would repeal new "carryover basis" rules scheduled to be effective next year. Under current law, when you inherit property from an estate, the "basis" of that asset for income tax purposes is stepped up to its fair market value (FMV) on the date of death. When the estate tax is fully repealed in 2010, the stepped-up basis rules are also scheduled to be repealed. The new general rule will be that the basis of the property will carry over from the decedent. (An exception to this rule allows $1.3 million of property to be stepped up to FMV, and an additional $3 million is stepped up if the property is left to a surviving spouse.) H.R. 436 would repeal the new rules prior to their effective date. (2009 Heckerling Report)


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