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  • 1.  S Corp sale of property

    Posted 07-26-2018 11:13 AM

    Hi, We have an S Corp client with 2 shareholders. The entity owns one piece of property and they are selling it.  One of the two shareholders wants to exit the business and the other shareholder wants to do a 1031 exchange with his half of the proceeds.  Can one shareholder pick up 50% of the gain on the sale and the other shareholder do a 1031 exchange with his 50% of the proceeds?  How about if they have a deferred gain on this property due to a prior 1031 exchange? 

    Thanks in advance for any assistance!



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    Jay Gordon, CPA
    Lynbrook NY
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  • 2.  RE: S Corp sale of property

    Bronze Most Valuable Member
    Posted 07-26-2018 12:04 PM

    1031 must be in the entity level. S Corp requirements require pro rata share so cannot split if both are owners.

     

    What about refinancing the building first and buying out the other owner then the one remaining owner does a 1031. Only issue here would be that the refi will require a mortgage on the new building also or you will have taxable boot.

     

    Maybe some other type of loan not associated with building to avoid the boot.

     

     

     

     

     

    Vincent J. Preto, CPA

    Senior Partner

    Wagner & Zwerman LLP

    201 Old Country Rd. Suite 202

    Melville, NY 11747

    Tel. (631) 777-1000 Ext. 340

    Fax  (631) 777-1008 

     

     

      logo-wagner-zwerman2                 image005.png@01D1E40C.9CB93920              aicpa-member                          

     

     

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    Original Message


  • 3.  RE: S Corp sale of property

    Platinum Most Valuable Member
    Posted 07-26-2018 05:43 PM
    Jay:

    I am trying to work this through in my head. This is one of the great downfalls of holding real estate in an S corp. 

    You might want to reach out to one of the exchange companies as they do have creative legal teams.

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    Robert Brown
    ROBERT N. BROWN, CPA
    Jericho NY
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    Original Message


  • 4.  RE: S Corp sale of property

    Bronze Most Valuable Member
    Posted 07-27-2018 08:56 AM

    The entity (not the shareholders) owns the property and enters into a Sec. 1031 exchange. The entity receives the replacement property. Any gain recognized on the transaction passes through to the S corporation shareholders. In this situation, the shareholder who wants to exit the business needs to be bought out before the exchange takes place.
    Most real estate clients own property in LLC's. When members have different objectives and want to go their separate ways, the property can be held as a tenancy in common. For example, one member owns a 50% TIC, the other member owns a 50% TIC interest. In this situation, one member can sell his 50% undivided interest in the property in a sale transaction and recognize the gain. The other member can enter into a Sec. 1031 transaction, receive replacement property and continue his ownership in real estate

    Any additional info and I can put you in touch with our Real Estate partners

    Hope this helps



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    Scott Sanders CPA
    GETTRY MARCUS CPA, PC
    Woodbury NY
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    Original Message


  • 5.  RE: S Corp sale of property

    Posted 07-30-2018 11:15 AM
    Thanks to all who responded to my question!



    Original Message


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The opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute an accounting opinion.