Reply With Quote..are they planning on reinvesting in a higher property at all?
I need help with a client capital gains/tax problem on a commercial property. So for all you real estate, tax, and legal property guruÂ’s in here, if you have a solution or know somebody who may, I would appreciate a referral.
HereÂ’s the situation: A client has a commercial property that was purchased and held in a C-corp. The client converted to an S-corp. They wish to sell the property. However, there is an IRS rule that mandates a 35% penalty PLUS the 15% capital gains rate for a total 50% tax on the sale if the property is not held for 10 years past the S corp conversion. Obviously the client does not want to sell and lose 50% in tax.
Has anyone experienced a similar situation, and if so, how did you solve it? Would a stock swap still be considered a constructive sale? Can this be solved using a trust? Any help would be appreciated!
Thank you,
Stuart
..are they planning on reinvesting in a higher property at all?
Try the tax board over at fool.com. Those folks are really knowledgable. It is too complicated for me to give a correct answer off the cuff, but I assume that you are referring to recognition of built in gain under section 1374. If so, I would think the best avenues for avoidance would be a 1031 exchange or a sale of the corp (if it is a single asset entity). Sale of the corp is going to present its own issues though (dont know why anyone holds real property in an S corp anymore -- all burden no benefit).
Anyway, I wouldn't want to put my malpractice insurance on the line for this wihtout a lot of research etc and all the facts, so do not rely on this. (not intended as legal advice/ no attorney client relationship intended)
I can recommend someone who specializes in real estate tax planning. Helped me minimize the built in gains on a similar transaction at work
One option may be to reverse the S election, pretty sure that can be done, except you will have to wait 5 years(I think) to do it again...
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