Will my strategy be effective in deferring gain recognition on sale of the land?
If i own investment land(350,000 FMV and 120,000 adjusted basis)that i am interest in selling.several prospective clients have offered to pay cash,but i want to avoid recognizing my entire gain in the year of sale.I am considering selling it to our family corporation in return for 20 year-9% corporate debt oligation.Th corporation can then sell the land to an unrelated party for cash.
This deal doesn’t pass the smell test because the corporation is a related party. I think that there is a strong possibility that:
1. You would be taxed on the full amount of the gain because the corporation is a related party.
2. The sale would would be taxed as ordinary income because it was a sale to a related party. (Code Section 1239 (a) ).
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February 13th, 2010 at 5:00 pm
Your basis in the property will be transferred to the note. As the note is paid off, you would pay the taxes so your strategy will be effective in deferring the gains.
Have you considered performing a 1031 tax deferred exchange? You would need to buy other investment property but would be able to not pay any taxes.
References :
starker.com
February 13th, 2010 at 5:05 pm
This deal doesn’t pass the smell test because the corporation is a related party. I think that there is a strong possibility that:
1. You would be taxed on the full amount of the gain because the corporation is a related party.
2. The sale would would be taxed as ordinary income because it was a sale to a related party. (Code Section 1239 (a) ).
References :
I am a CPA, My source is CCH Para 1744 2008 US Master Tax Guide.