Serving as Qualified Intermediary to Professional Advisors and their Clients since 1989 on Forward, Improvement, Reverse, Parking, Personal Property, Multi Asset and Foreign Section 1031 Exchanges.
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August 2008
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Your Trusted TAXABLE GAIN ISSUES FOR C CORPORATIONS RELATED TO 1031 EXCHANGES Recently, we have handled several exchanges for clients who currently operate or previously operated as C Corporations. C Corporations is short hand for corporate entities that are taxed separately from their owners. Certain issues come up repeatedly in analyzing the tax impact of property sales. What tax rates will apply to gain from the sale? Should Section 1031 be used to defer taxation? Here is a short primer to take to the beach this summer on these taxable gain issues. Recapture of Capital Gains as Ordinary Income. Real estate and depreciable business assets are taxed either as capital asset, Section 1231 property, or ordinary income property. The greater the investment intent, the greater the chance for capital gain. The greater the business efforts to derive income from the property, the greater the chance the property will be treated as ordinary income property. The most favorable characterization is Section 1231 property, where gains are taxed at capital gain rates and losses are treated as ordinary losses. However, most tax advisors fail to focus on the fact that Section 1231 gains are recaptured as ordinary income up to the aggregate of Section 1231 losses for the prior 5 years. Sale of depreciable property between related parties is treated as ordinary gains. If the ownership is 50% or more, the gain is ordinary. This should not be confused with the rule under Section 1031, which states that a related party exchange is deemed to occur if the related parties own more than 50%. Corporations must take into account an additional 20% of the gain as ordinary income on the sale of property depreciated over the straight line method. Recapture of Depreciation, including Section 179 Deductions.
Higher tax rates apply to taxable gains. There is a 35% built-in gains tax on gains from the sale of certain appreciated real estate or business assets currently owned by an S Corporation, that was acquired from a C Corporation or during the period in which the corporation was taxed as a C corporation. This corporate level tax expires ten years after the S election or acquisition of property from a C Corporation in a tax deferred transaction. Do you need assistance trudging through the maze of tax laws that are related to 1031 Exchanges? Contact Steve Robison, who is a Board Certified Tax Attorney. Through his company, Strategic Property Exchanges, LLC, he has assisted Advisors and Property Owners successfully navigate the 1031 Exchange of their Business Assets with the lowest possible tax impact and the greatest value for the parties involved over the past 18 years! |
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Upcoming Seminars October 15, 2008 October 29, 2008Indianapolis, IN Advanced Section 1031 Exchanges-Event# 45618 8:30 a.m.-4:40 p.m. |
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| Strategic Property Exchanges: Our Seven Service Guarantees!
(1) Exchange funds are fully insured; (2) Unlimited consultation and tax planning; (3) Protection with Errors and Omission insurance policy; (4) Covered Tax opinion protects client and advisor; (5) Complies with: Circular 230; FASB FIN 48; Section 6662; Schedule
M-3; Sabanes Oxley 404; (6) Advisor protection from IRS sanctions and penalties relating to Circular 230; (7) IRS "audit-proof" auditing package included |
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