Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.
The main question is "how is the LLC taxed?"
LLCs are not recognized for federal tax purpose. An LLC can choose it's tax form, depending on the number of members
There is no need to keep entering and exiting the chat,
Also, are there owners of the LLC besides the C-corp?
I understand how an LLC is taxed. The C Corp would be 100% owner.
If the C-Corp is the sole owner of the LLC, then the LLC is tax as a pass-through entity and no gain or loss is realized on the transfer of assets to the LLC.
All income is passed back to the C-Corp
In general, holding property in a C-Corp is not a great idea due to the tax on capital gains because there is no preferential treatment for tax purposes. The corporation pays its regular tax rate on the gain.
Ok, I see. So at the time when the land was sold it would pass through as a capital gain on the C Corp? The land does have a cell tower that produces rental income. Would this effect the situation? Thanks so much for all your help.
It has no effect because all income to a c-corp is taxed at the same rate.
And the capital gain would be at their current income tax rate and not at a short term or long term rate depending on the holding?
Sorry. We were typing at the same time.
There is only one tax rate for c-corps. It starts at 15% and quickly goes to 35%
Only the first 50K of income is at 15%
The LLC simply provides another legal of LEGAL protection, but does nothing for taxes.
that's another LAYER of LEGAL protection
So basically you would set up the LLC with the C Corp being the 100% owner then transfer the property to the LLC by a capital contribution. The C corp is a transportation company so if they are sued and the land is in the LLC it can not be touched? Correct?
I will leave the legal protection question to the lawyers. That's outside the scope of a tax question.
THe important thing is no gain or loss is recognized on such a transfer.
So if the owners of the C Corp are the members of the LLC. Is the tax paid at the C Corp level for the capital gain or is it passed along to the shareholders and they pay at their capital gain rates?
The C Corp owning 0% in this situation.
If the owners of the C Corp are members of the LLC then the C Corp does NOT own the LLC and gain or loss IS recognzed because the asset leaves the C Corp
In this scenario, the C Corp recognizes gain and it is taxed at the C corp rate! 25%
I apologize, I have a client waiting. I will return in about 20 minutes if you need further help on this topic.....please excuse me.
Ok. Any other way to get the land out of the C Corp without it being a taxable event?
I un-apologize! The client has been taken care of!
There is no way to get the asset out of the C-Corp without there being a taxable event.
Haha. Thanks so much for all your help so far.
You can exchange the property for something else, but you would still end up with real property in the corp
I heard of section 355 applying to this but it doesn't make sense to me? Any thoughts?
Like kind exchange I'm assuming?
A 355 is effectively a tax-free spin-off. You would have to create a separate entity first.
Section 355 allows a corporation with one or more businesses that have been actively conducted for five years or more to make a tax-free distribution of the stock of a controlled subsidiary provided that the transaction is being carried out for a legitimate business purpose and is not being used principally as a device to bail out earnings and profits
Any like kind exchange would require you to replace the building with some other $4MM income-earning asset. It does not solve the problem
Ok. Thank you so much for your help. Is there any way to request your services for my questions in the future or do I just happen to get whomever is available?
You may put my name first = Randall K
If I am online, I will have 15 mins to respond then the question goes to the first available agent
Ok. Thanks again for all your help.
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Ok. How do I follow up? Just come back to JustAnswer and ask the question again? Sorry for all the questions, this is my first time.
Even after you have made a rating, you can come back to ask a follow up as long as it is on topic. New topics require a new question.
Just bookmark this page if needed for referecne
Perfect. Thanks and hope you have a great weekend.
Mr. Klein, Thank you very much for all your help and I look forward to keeping in contact in the future. Just a little background on myself. I have been in public accounting for 15 years and have started my own firm. I am a sole proprietor so I'm missing that additional team member or staff to bounce ideas off of day to day. Hopefully we can keep in touch. Your information 2 weeks ago was very helpful. Below is my contact information if you would like to reach me personally at anytime. Thanks again and I hope you have a great day.