Discussion:Moving Property out of a C Corp
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Discussion Forum Index --> Tax Questions --> Moving Property out of a C Corp
| 12 August 2010 | |
| Hey gang,
I have searched through the boards and found plenty of great information regarding property in a corporation and how it is pretty much malpractice to do this. The one thing I didn't see is what to do exactly once the property is in the corporation...essentially, how would you get the property out of the corporation with the fewest tax consequences? This is a new client, a motel owner in fact, who has his motels in a C corp. Well, he sold one of the motels, and had an enormous gain. We would like to avoid this in the future obviously, but I am not really sure what the best way to do this is. Any suggestions/ideas are appreciated...especially from JR1. :) | |
| August 12, 2010 | |
| ! Why me??
I don't know much about motels anymore, many years ago had some familiarity...but no mas. So there should be some separation between the biz and the real estate. But my opinion is that IF the market has plummeted to the point that you can get them out without tax cost, or with an unrecognized loss due to related party, then do so. It's worth a few legal bucks to dodge that double tax later on. If you'd still have huge gain, there's not much you can do other than elect S and hold on for ten years. And go shoot the old accountant and attorney who set it up, if they're still living. | |
| 14 August 2010 | |
| "he sold one of the motels, and had an enormous gain. We would like to avoid this in the future obviously, but I am not really sure what the best way to do this is"
Tell him to not charge so much next time he sells a motel. Occam's Razor? | |
Harry Boscoe (talk|edits) said: | 14 August 2010 |
| Maybe Occam's Razor would favor not selling. | |
| 14 August 2010 | |
| There are many ways to ".... get the property out of the corporation ...."
Out with zero tax:
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| 14 August 2010 | |
| Terry, how would you get the exchanged property out (after the 1031 exchange). Second, why would the exchange of a partnership interest for real estate be nontaxable. | |
| 14 August 2010 | |
| How to get the exchanged property out was not the question. He may want to exchange the motel for a one bedroom investment property on Sannibel.
A corporation, or an individual for that matter, may contribute assets to a partnership in exchange for a partnership interest. | |
| 14 August 2010 | |
| Terry, OP question was how to get the asset out of the corporation with "fewest tax consequences" not how to change the motel with a different asset. | |
| 15 August 2010 | |
| This is a bad situation, so you're not going to get a good answer. With that said, flipping to an S-corp and waiting 10-years is certainly an option as JR1 points out. Another option is to freeze the value of the appreciating asset with an installment sale. The last thing I can think of would be to contribute the appreciating asset to a partnership, but you'll obviously need at least one more partner. Then, the partnership interest could be distributed out of the C-corp as a dividend at some later date. Here, you may be permitted to discount the value of the distributed partnership interest by a marketability discount, maybe a minority discount and maybe a built-in gains corporate tax discount. Just thinking out loud here. | |
| August 15, 2010 | |
| If:
(1) the corporation transfers the property to a partnership prior to making the S election; (2) the value of the property is less than $100,000; (3) the corporation gets less than a 10% interest in partnership capital and profits (and it stays that way throughout the recognition period) -- like, because the stockholder contributes to the partnership other assets worth more than 9 times the value of the property; and (4) there was not a principal purpose of avoiding the tax imposed under section 1374; ...then, the partnership can dispose of the property immediately after the S election; the gain gets allocated to the S corporation, but won't be subject to the notorious BIG. How you accomplish (4) is left as a challenge for the reader. | |
