Without discount definition
Without discount means that no fine, fee, or other monetary penalty or expense can be charged for the exchange of the check or other payment instrument for cash.4
Without discount. Interest NAV/FMV $100 Estate tax rate Estate tax x 40% $40 Sell interest $100 Less adjusted basis (100) Gain -0- Total tax $40 The decision about whether it is more advantageous to achieve estate tax savings through valuation discounts or the possible cost of incurring more capital gains taxes might be influenced by some of the following factors: • What is the likelihood that the interest will be sold following ▇▇▇’s death? If it will not be sold or if it may not be sold for some extended period of time, there is a time value of money by taking a discount and paying less estate tax up front. • Will a §754 election be made to step up the basis of Mom’s estate’s share of the FLLC assets under §743? If a §754 election is not made then Mom’s estate’s share of the gain on the sale of an FLLC asset could be much higher. Typically, this is only a timing difference, since Mom’s estate’s share of the gain would increase its outside basis in its FLLC interest, it can nevertheless create problems. • What capital gains tax bracket will the seller of the interest be in? Will the 3.8% net investment income tax apply? • If there is potential §751 income in the entity (if it is a partnership or LLC), then if a valuation discount is taken, some of the gain incurred upon a later sale may be ordinary income. For example, suppose the assets that are subject to substantial depreciation recapture, or recapture of intangible drilling and development costs, or they are unrealized receivables or inventory? If Mom’s estate took a 30% discount on its FLLC interest, then 30% of the subsequent sales price (assuming the sales price is estate tax value) will be gain, and much of that gain could be taxed as ordinary income. In Example 8-1, if all of the gain is taxed as ordinary income, and if the estate is in a combined 37% federal and 5% state income tax bracket such as in Oklahoma, then there would be a tax of 42% on the gain. In that event, the total tax would be greater if a discount were taken rather than not taken. • There is also the complexity of structuring the transaction to create or maximize a discount.
Without discount. Discounted: Regular Membership: $ $ ( %) NACM Regular Membership: $135 $115 (20 %)