Understanding Ownership Interest and Lack of Marketability Discounts in Estate Appraisals
When someone passes away, everything they owned must be valued for estate tax purposes. But if they owned only part of a property, that piece is usually worth less than its percentage of the whole. This is normal, expected, and recognized by the IRS.
Partial ownership isn’t the same as full ownership. For example, owning 30% of something does not give you 30% control. A partial owner often cannot decide when to sell, control how the property or business is run or force other owners to make changes.
Because of this limited control, a typical buyer would pay less for a partial interest. This reduction is called a Discount for Ownership Interest.
Partial Interests are harder to sell because most buyers want to purchase a whole property—not a fraction. Selling a partial interest can take longer, involve legal steps, and attract fewer buyers, if any at all. This makes the interest less valuable today. This reduction is called a Discount for Lack of Marketability.
These Discounts Are Standard and IRS Recognized. The IRS understands that partial owners have limited control and partial interests are harder to sell.
As qualified appraisers, we apply these discounts to reflect the real-world market value of their interest in the farm or even a business entity.
What does this mean for your estate? If your estate includes shared real estate, family business interests, and/ or LLC or partnership units …the value used for estate tax purposes will likely be lower than the asset’s full value multiplied by your ownership percentage, where including family members in an ownership interest is a great tax strategy.
This often results in lower estate taxes and a more accurate reflection of what the interest is truly worth at the time of the family members passing.
Professional appraisals matter and it takes a qualified appraiser to make that happen. Which is where we come in to assist you! When determining the Ownership Interest and Lack of Marketability Discounts in Estate Appraisals, our appraisers begin by determining the market value of the real estate at 100% ownership. From there, the specific ownership structure is analyzed, including operating agreements and other legal documents that define control rights and restrictions.
Only after that thorough analysis and valuation are when appropriate discounts can be applied— Ownership Interest and Lack of Marketability Discounts that are supported by data and compliant with IRS standards. In some cases, these discounts can be as high as 30%, depending on the circumstances.
Every property, ownership structure, and family situation is unique. Not all partial interests receive the same discount, because each valuation depends on who owns what, how much control they have, and how marketable the interest truly is.
As always, we diligently ensure our valuations are fair, defensible, complaint and in your best interest.
To learn more about our appraisal process and the ways we can assist you, please be sure to check out our webpage or give us a call!
When you need a farmland appraisal or market analysis, we are here to help! For more information on our services or if you want to chat, please feel free to stop in the office or reach out to Nicole at (631) 905-2074 or nicole@roosterag.com
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