Buy-Sell Cross-Purchase vs Redemption 2027 Calculator
Compare cross-purchase vs entity (redemption) buy-sell agreement funding via life insurance for 2027 — covering basis step-up, premium tax treatment, and AMT exposure.
Cross-Purchase vs Redemption Structure
Cross-Purchase: each owner buys life insurance on the OTHER. Death triggers buy-out using policy proceeds. Basis step-up at death = recipient gets stepped-up basis when selling. Redemption: company owns policies on all owners. Death = company redeems shares from estate using proceeds. NO basis step-up for surviving owners.
The Step-Up Advantage
Cross-purchase delivers full basis step-up to surviving owners. Example: 2-owner LLC, owner dies, partner buys deceased's interest with insurance proceeds. Surviving owner's basis = original + purchase price (step-up). Redemption: surviving owner's basis stays at original (no step-up) — they pay capital gains tax on full appreciation when they eventually sell.
C-Corp AMT Trap
Pre-2018 C-Corp redemption: death proceeds increased AMT income. TCJA largely eliminated C-Corp AMT but careful planning still needed. S-Corp: redemption is cleaner. LLC/partnership: cross-purchase strongly preferred for basis step-up.
Premium Funding & Number of Policies
2 owners = 2 policies (each owns the other's). 3 owners = 6 policies. 4 owners = 12 policies. Cross-purchase grows complex fast. Trust workaround (Insurance Trust): single trust owns all policies — simpler admin but requires careful drafting.
Source: ABA Section of Real Property, IRS Section 318/302 stock redemption. Last updated: May 2026.
Frequently Asked Questions
Why is basis step-up so important?
Death triggers automatic step-up to FMV for inherited property. Cross-purchase mimics this for buy-out — purchase price becomes new basis. Redemption doesn't transfer ownership, so surviving owners keep old basis and pay full capital gain later.
What about LLC operating agreement triggers?
Buy-sell can trigger on: death, disability, retirement, divorce, bankruptcy. Each may have different valuation and payment terms. Life insurance funds only the death trigger; others may need installment notes or sinking fund.
Are premium payments deductible?
Generally no — corporate-paid premiums on life of owner are not deductible (Code §264(a)). Personal cross-purchase: not deductible (personal expense). Plan around the after-tax premium cost.
What if values change?
Update buy-sell valuation annually — many use formula (5× EBITDA) or annual appraisal. Insurance amounts may need adjustment. Otherwise, insurance may be insufficient (too small) or wasteful (too large).
Is my data private?
Yes. All calculations run in your browser. Inputs are never sent, stored, or shared.