The IRS allows for a discount to the value of an entity that owns real estate for interests of less than 100%. This is known as a fractional or partial interest. This would apply to limited partnership (LP), general partnership (GP), limited liability company (LLC), tenants in common (TIC), C and S corporate stock and undivided interests. The discount relates to the fact that the ownership interest has a “lack of control” over the operation and disposition of the real estate owned by the entity and a “lack of marketability” due to the difficulty in selling interest that is not publicly traded and is not easily financeable.
The valuation of these types of interests can be very complex and it is essential that a proper analysis be conducted if it is going to be accepted by the IRS for tax filing purposes. Valbridge Property Advisors continually updates its’ proprietary national database of fractional interest sale transactions and has the required expertise to tackle any tax situation as it relates to fractional interests.