What is a Transfer of Interest?

Published by Thomas Herold in Investments, Laws & Regulations, Real Estate

'Transfer of Interest' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A Transfer of Interest refers to an individual, business, or other organization choosing to transfer over its ownership in an asset or object. This could be a business entity, piece of Real Estate, or asset that the owner shifts to another party. Most commonly the term becomes utilized regarding the transferring of an entity’s ownership of an interest in a business. This could involve transfers between parties in a limited liability company, a partnership, a privately held sole proprietorship, or even a corporation. In the vast majority of cases, such a transfer occurs with a contract known as a transfer of interest agreement.

In theory, any time individuals or businesses engage in a purchase, they are becoming party to a contract. Such contracts are actually making a Transfer of Interest in some form of real property in the vast majority of cases. As a concrete example, when an individual buys food off of a supermarket or produce stand, this literally represents an implied contract (evidenced by a receipt as proof of purchase). The end result is that the buyer becomes the transferring new owner of the food purchase. The same is true when people buy clothing from a department store. The ownership of the clothes becomes officially transferred by the contract which the store makes with the buyer when money changes hands in exchange for a receipt and the articles of clothing.

Any type of Transfer of Interest is affected with whatever terms the two parties agree upon at the time of transfer. These could involve legal restrictions and stipulations on the kind of interest which they will transfer between them. The appropriate agreement only has to state clearly the interest which will be transferred, the parties who are involved, and the sum being delivered in consideration of the interest transfer. After the transaction intent is clearly stated by the actions and/or verbal promises of the two parties in question, the agreement will be officially concluded so that the transfer becomes finalized.

Naturally the universe of Real Estate has its own highly evolved and carefully developed procedures for such an important Transfer of Interest. They commonly call this an assessable transfer of interest. It refers to the reality of taxation which goes along with tangible interest in and de facto ownership of Real Estate. These transfers mandate that the property will be appraised and fully re-evaluated in the tax year that follows the transfer. All transfers of Real Estate done either with a contract, trust, or deed will be treated as such by the taxing authorities in the relevant jurisdiction. Leases that last for more than 20 years also come under this requirement. The reason for such an evaluation of the property value is to be certain that the taxes are fairly and fully assessed on the Real Estate involved in the contractual transfer transaction.

It is many times the same when there is a Transfer of Interest in a business accomplished through a sale. This event often produces an assessable event which will require a tax assessment to be done. When the business is at least 50 percent sold, this will commonly be required. When a business is instead forfeited or foreclosed on and the change of status does not lead to an income tax event, then this is an exception to the tax assessment rule.

When a transfer occurs among an affiliated group’s members, this is also an applicable exception to the assessment case. There are often these substantial tax ramifications to such a transfer of a business that the government will usually require that the business value be reassessed following the execution of the business transfer transaction in question.

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The term 'Transfer of Interest' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.