Discussion:1031 Exchange Motel Property for Land
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Revision as of 20:16, 19 August 2006
Discussion Forum Index --> Tax Questions --> 1031 Exchange Motel Property for Land
| 19 August 2006 | |
| Client has sold motel property and wishes to do a 1031 exchange. He has already identified land(two lots) that are commercial property, yet unimproved. The cost of the two lots are greater than the proceeds of the motel property sold. Client will build either one or two new motels on this land.
At some future point an individual will invest X dollars to purchase half of the interest in the "S" corporation owned by the client. Client presently is sole owner of the "S" Corporation. Proceeds of 1031 is $900K. Land cost is $1.1M. New shareholder will invest $550K (exactly one-half the cost of land), either to purchase 50% of the land or provide funds for construction. I am concerned that if the character of the new shareholder investment is deemed to be sale of part of the land, then capital gain on the transaction must be recongnized. If the investment is to purchase a 50% position in the "S" corporation, then no gain is recognized and the funds may be used for construction of one or both new motels. Will the character of the 1031 exchange be altered with investment by new shareholder or will this investment be deemed a "Cash out" by my client? It is my opinion that funds invested should be utilized for land improvements in the form of new income producing property, not the purchase of a 50% interest in the land. Balance of funds for construction should be sought from lending institutions. Appreciate any and all assistnace. MPF | |
