Discussion:C Corp Real Property Sale
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Discussion Forum Index --> Tax Questions --> C Corp Real Property Sale
| 3 November 2006 | |
| C Corp has raw farm land with basis of $500,000. Corp has recently been offered 6,000,000 to sale the land. Does anyone have any suggestions on how to structure the sale to limit the C corp's tax liability. C corp has a fiscal year end 9/30. Any other strategies would be helpful. | |
| 3 November 2006 | |
| Anybody out there want to defend real estate inside a C corp?? This is why you don't do it.
Point shotgun at right foot. Fill out 1099-DIV. Pull trigger again. Bang. Personal tax. I don't suppose you can talk client into postponing sale for 10 years while he waits out the Built-in Gains Tax, can you??? | |
| 3 November 2006 | |
| You left out the part where the gun is pointed at the CPA who's been advising him. | |
Death&Taxes (talk|edits) said: | 3 November 2006 |
| We will have to add CPAs and EAs to Shakespeare's lawyers, won't we? I will say I have seen a number of times where in private sales with seller financing, the buyer is asked to incorporate and the stock is held as collateral for the note. Makes it easier for the seller to repossess. | |
| 6 November 2006 | |
| I fully understand the taxable effects of this transaction and was not the person who advised the client to incorporate 30 years ago. I was under the impression that this forum was to help fellow accountants find solutions to tax issues for our clients, not to serve as a comedy club. If anyone has any proven strategies to "limit" the liability in question, I would appreciate it. | |
| November 6, 2006 | |
| There are no strategies for this one, and it's been asked a lot the past few months. So all we have is the comedy routine. Death is literally, the only option. If the primary asset in the corp is the RE, then at the death of a sole shareholder, the value of the stock will step up, effectively stepping up the underlying RE. At that point, the corp can be liquidated, the RE sold for no gain. If the corp is jointly owned, pick the one to die first and transfer the shares. Or, elect S status and wait 10 years to sell or show profit. | |
| 6 November 2006 | |
| Without knowing more about the corporation, suggestions are very limited. If there is any justification for salaries/bonus, pay the largest bonus that you can justify to reduce taxable income. Ditto retirment plan contributions. But your options are quite limited and, as I said, you really haven't told us much about the corp for us to be of much help. | |
| 6 November 2006 | |
| The corporation is owned by 2 50% individual shareholders and conducts farming and ranching activities. Unfortunatly, the sale in question will probably bring to the surface other issues on the books that have not been handled properly in the past. It is one of those situations where the more I dig up, the worse it gets. The 10 year wait won't work because the client wants the money now. (Imagine that) Thank you all for your input.
What other info on the corp do need to better asses the question? | |
| November 6, 2006 | |
| Consider a refi, then, to get the cash out. Then the 10 year clock could begin to tick... | |
| 7 November 2006 | |
| <Consider a refi, then, to get the cash out. Then the 10 year clock could begin to tick...>
Banks are very very reluctant to loan on raw land, especially farm land. It just doesn't produce enough income to justify the loan in most cases. Especially not $6 Million worth. And definitely never on a refi. NOTHING sucks worse than hearing the bank say they can't even loan you $500k on your $6 Million market value of raw land because it doesn't produce a sufficient income. Is the land the only asset in the corp? What if they sold off (for example) all farm machinery and then sold the corp itself to the buyer? | |
| 7 November 2006 | |
| The problem with selling the machinery is that they are still going to be engaged in the farming activity. The land that is being sold is mountain grazing land that only supports part of the farming activies. The reason they want the money now is so that they can pay off the debt the corporation currently has. Remember, this is a farm, they have never "made" any money, just continually borrowed to buy assets to write off. I only wish that they would have thought about this scenario 30 years ago. | |
| 7 November 2006 | |
| Does the buyer intend to retain the property? If so, maybe you can sell the corporation and the buyer can make the S election to wait out the 10 year B.I.G. window. You will likely have to discount the price to achieve that, but maybe seller and buyer can both benefit. | |
Bottom Line (talk|edits) said: | 7 November 2006 |
| Is ALL the land owned by this one corp? Do they have any land which is personally owned or owned by another entity? | |
| 7 November 2006 | |
| The buyer does not intend to retain the property and the land is all owned by the corporation. No other land is owned personally or by any other entity. All land was placed into the corporation back when it was organized. The client told me that their initial intention was to never sell it. (Money changes everyting) Is there anything that could be done by gifting the property to a charitable trust? I know that these vehicles are sometimes used and highly watched; I only ask because my experience with them is limited and I have heard of church organizations using them to acquire property. | |
| 7 November 2006 | |
| Hi need to first get it out of the corp to do a CRT and that just gets you a partial charitable deduction, a stream of income and avoidance of the personal capital gain tax. Unfortunately your clients either wait 10 years or suck it up and pay the tax. too bad. bye | |
| 7 November 2006 | |
| I would think with 6 mil on the table there ought to be some wiggle room. A lease option contract perhaps? Elect S, pay out retained earnings and wait 10 years to complete sale? | |
Corptaxhelp (talk|edits) said: | November 15, 2006 |
| Miller24, I'm confident that my company and I may be able to assist you and your client. If nothing else, we can help you to see what other options are available to you. We have a lot of experience in dealing with c-corps who have sold real estate.
As Mr. Dugan notes, holding real estate inside a c-corp is painful for all involved. As you noted, waiting ten years is rarely a preferred option. Still, enough people make that mistake that we have made it somewhat of a specialty. Drop me an email, corptaxhelp@gmail.com, and we'll arrange a call to discuss the details of your situation. Without a lot more detail, I'm afraid I'd just be shooting in the dark. I'd hate to lead you astray because of a lack of information. | |
| 19 May 2009 | |
| I have a client that wants to get property out of a C-corp and is now starting to do substantial renovation. If he is willing to wait the 10 years (is it 7 now?) would it be better to do the renovation in the S or C corp? | |
| May 19, 2009 | |
| If that's the primary asset, then switch to S, wait 10, then die. That's the only perfect scenario outside of a time machine. | |
| May 19, 2009 | |
| But you do have to decide who will die first and have all the stock in their name. | |
| 19 May 2009 | |
| If you switch to an S corp in 2009 or 2010, you will only need to wait 7 years. | |
| May 19, 2009 | |
| Really? Didn't know that...well, that just accelerates the death date, tho', doesn't it? | |
| 19 May 2009 | |
| There's a reason why you didn't know that, JR. 'Tain't so.
If an S corporation that previously was a C corporation, or that acquired property from a C corporation in a carryover basis transaction, disposes of built-in gain property in 2009 or 2010, there is no BIG tax if the 7th taxable year in the recognition period preceded the disposition year. IRC Sec. 1374(d)(7)(B), added by 2009 Recovery Act Sec. 1251(a). So, no BIG tax will be imposed on a disposition in 2009 or 2010 if the S election was made effective on or before January 1, 2002. If the election was made effective Jan. 1, 2003, no BIG tax will be imposed on a disposition in 2010. Making an S election in 2009 or 2010 has no effect on the 10-year recognition period for built-in gains. | |
| May 19, 2009 | |
| AHA! Thank you Katie. These days, we doubt ourselves so much I don't even know what I know anymore. | |
| 19 May 2009 | |
| Well, it was all news to me too; I had to look it up. So thanks to FLAcct for bringing it up. | |
| 20 May 2009 | |
| KatieJ - Glad you wrote in to clarify this new ruling as it's a very important one. I don't know about you guys, but I had so many new tax laws coming at me during tax season that I couldn't begin to keep up with all of them! Apparently I only remembered part of this one. | |
- Question from a non-pro has been moved here.
