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Richard
Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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My wife and I (80 years old)have a 1120S corp that has only

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My wife and I (80 years old)have a 1120S corp that has only land and building which we rent for $20,000 per year to business which is owned by one of my sons how operates a retail business on the property (I believe my son's business is also an 1120S corp). We want to give our 1120S to my son because we do not want the son that has the business to incur a problem from our other sons should we past. We are considering preparing an IRS Form 709 as the certified appraiser has been telling us the land and building has an current appraised value of $300,000 and our adjusted tax cost basis is about $135,000. We need to continue receiving the $20,000 per year as we live on the money plus our social security. We thought about selling the business to my son's business and collecting approximate $20,000 per year, but understand there may be an inheritance issue with all my sons should we past. What tax issues and problems may we incur and what do you suggest?
Submitted: 3 years ago.
Category: Tax
Expert:  Richard replied 3 years ago.

Good afternoon. Because you need the $20,000 a year in payments, you can't simply give them the property. I would suggest you sell the building at it's fair market value to your son's business on an installment basis calling for annual payments of $20,000. That will give you your $20,000 annually and the gain portion of that will be taxed at long term capital gain rates rather than ordinary income rates. Then, you can provide in the note agreement that any amount outstanding at your death is forgiven.

 

 

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The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 3 years ago.
Will the remaining position of the note become part of our (upon death of me and my wife) estate and could my other sons challenge the deal ownership on our death? If they can challenge what is the probability that they will succeed? Our plan would be to eliminate the S corp after the sale. I plan to sell effect 12/31/10 based upon what you have stated and eliminate the S corp at 12/31/10, 11.59 PM. Is this the best?
Expert:  Richard replied 3 years ago.
If the note provides it is automatically forgiven at death, it will not be part of your estate. Your other sons have no right to challenge it...it's your money...but to insure that there can be no claim that this was not your intent, you should put language in the note specifically stating that this was your intent and that you knew it would not be in your estate and did not intend for the other kids to have an interest in this. No, let the S corporation continue to exist and collect the $20,000.
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 45641
Experience: 29 years of experience as a tax, real estate, and business attorney.
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