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Discussion:Real Estate in C Corp

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Discussion Forum Index --> Basic Tax Questions --> Real Estate in C Corp


Discussion Forum Index --> Tax Questions --> Real Estate in C Corp

BEGooding (talk|edits) said:

January 4, 2008
Taxpayer has $20MM worth of warehouses that have a $5MM basis in C Corp. He wants to sell the warehouses and cash out. I know that real estate in a C Corp is generally not a good idea but wonder about just selling the entire C Corp to a third party as a means to get favorable tax treatment. Taxpayer would have personal LTCG's on sale of stock. This just seems too easy; am I missing something?


From the buyer's perspective, what would stop them from liquidating the newly acquired C Corp and contributing the property to an LLC giving them a $20MM basis in the newly acquired buildings? Again, this seems too easy and I must be missing something?

Death&Taxes (talk|edits) said:

4 January 2008
I suppose the problem is finding someone who wants to buy the C Corp at the FMV.....they are going to discount the tax they will pay to liquidate, won't they?

JR1 (talk|edits) said:

January 4, 2008
Our guy corptaxhelp does just that, finds buyers...see if he'll respond to a post.

BEGooding (talk|edits) said:

January 4, 2008
But if the buyer liquidates the newly acquired C Corp, wouldn't there be no tax effect upon liquidation since the FMV of the property distributed equals the cost of their stock?

JR1 (talk|edits) said:

January 4, 2008
I think that's kind of the deal. You negotiate a price to split the tax pain. No matter what, the C is paying cap gain tax either by selling the RE or liquidating which is a deemed sale/distribution at fmv. Buyer is figuring to offset with basis in the stock.

BEGooding (talk|edits) said:

January 4, 2008
Right, I knew I was not thinking through this correctly. I forgot the C Corps basis in the assets will transfer to the new owners.

Thanks for your responses.

Death&Taxes (talk|edits) said:

4 January 2008
I was beginning to think you had something and wondered why JR and JD and others always would snicker at holding real estate in a C Corp. Snicker is too mild a word.....scream might be better.

Hadlin (talk|edits) said:

4 January 2008
But there are no C corp long term capital gain rates.

and the buyer would have to pay the recapture where as the seller would be paying long term capital gain rates..

he would be able to recover his basis but I still think recapture is an issue

BEGooding (talk|edits) said:

January 4, 2008
So the only solution for the buyer would be to die or convert C corp to S and wait 10 years to sell the property.

Hadlin (talk|edits) said:

4 January 2008
die would get stepped up basis but i think you still have recapture.

convert c to s requires some sort of revaluation. Not sure but I don't think you can without tax consequence.

Jctmstx (talk|edits) said:

4 January 2008
I have'nt been in grad school in many years but back then there were ways to do this under the reorg statutes. I have'nt done once since I was with Westinghouse many years ago. This is a very specialized field practiced by corporate finance departments of usually large law firms on billion dollar deals. I see if I can find some of my old notes to get you started. Usually these were legislated out as fast as they could be found.

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