Does a corporation incur regular income or capital gain tax on the sale of some of it's real estate ?
It depends on whether you are talking about raw land or buildings and what the buildings are used for.
It also depends on what type of corporation you are talking about. If it is a regular C corporation, it does not matter one bit.
C Corporations don't have a capital gains rate. All income is the same.
S Corporations pass income down to its shareholders.
If the real estate is investments then it could be capital in nature. If it is buildings used for the corporation, it might be ordinary.
Over 20 Years experience in resolving tough tax cases
What Happens Now?Your chat has ended, but you can still work with your Expert to get an answer to your question if you have not yet received one.Come back to this page at any time to see additional information from your Expert. You will also receive an email when your question is updated. If you want to send a message to your Expert, use the box below.If you have already received a satisfactory answer to your question, click the Accept button above. Experts are credited for each accepted answer they provide.
Our corporation is a regular - C - corporation and the building and land in question was leased out by the corporation as income property. I gather that the answer is it is going to be taxed as ordinary income no matter what because we are a C corporation. Additionally, this was an installment sale so we have interest as ordinary income and a pro-rated gain each year as ordinary income. Is that correct ? So the next question is: if we change to an S corporation now and then sell another income property, will it be ordinary income based on when we purchased it or what kind of corporation we are at the time of the sale ? And changing to an S corporation - would that effect the installment sale done while a C corporation ? Thanks for your help.
As a C-Corp, all gain is ordinary.
If you convert your corporation to an S-Corporation, you will have something called the BIG tax, or built-in gains. In essence, it prevents you from converting an ordinary gain into a capital gain by virtue of changing the entity type. If you convert your corporation AFTER you bought the asset, you would be set up for BIG tax. If you convert after the property is sold, again, you cannot convert to a capital gain.
The ONLY way you could end up with a capital gain is to sell the shares of the corporation itself.