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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 307
Experience:  Tax Accountant at Praxair, Inc.
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My corporation owns 3 residential real estate properties

Customer Question

My corporation owns 3 residential real estate properties that it is taking depreciation on for the last 7 years. My business is not doing much business and I want to sell these properties in the future or I might want to convert to personal use. I quick
claimed these properties into the business 7 years ago, what is the best way to proceed from here. How much tax will I owe?
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.

Is the corporation a S corporation?

Customer: replied 1 year ago.
no, c
Expert:  Jonathan Tierney replied 1 year ago.

The problem with distributing property to shareholders of a corporation is that the basis of the property to the shareholder receiving the distribution must equal fair market value at the time of the distribution. If the corporation’s basis is than than the fair market value, the the corporation must recognize gain. On the other hand, if the corporation’s basis is less than the fair market value, loss recognition is not allowed by the corporation, however the basis of the property is still adjusted upward when the shareholder receives it. This is the reason most people try to avoid putting real estate in C corporations.

The best way to use dispose of the properties would be based upon whether the corporation has had taxable income in the past couple years or whether it has a lot of net operating loss carryovers. In addition, it would also depend on whether you expect to have a gain or loss on the property. If you expect a gain and have net operating loss carryovers, you might want to either convert to personal use to sell it as the NOLs will offset any gain. On the other hand, if you have had taxable income in the last several years, you would want to sell them to an unrelated third party to recognize any loss and possible generate a NOL you could carryback to prior tax years and receive a refund. Finally, if you have NOLs and expect a loss, you in the worst situation, because you could recognize a loss on a sale to an unrelated third party, but you will need the business to generate income in the future to utilize any NOLs.

Let me know what situation you think you are in with the properties. Jonathan

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