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Chad, I am wondering if you could help. My client gave up…

Chad, I am wondering if...
Chad, I am wondering if you could help.My client gave up his 100% ownership of the s corporation in exchange of a property. He is remodeling a house and he will transfer the ownership to his s corporation that deals with flipping houses and rental property.How should I treat the exchange on his 1040/2017? The entire transition is dated: October 2017.Thanks, Chad!
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3/21/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,986
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there

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Can you tell tell me more about the transaction?

...

When property changes hands its either a gift (when nothing is received in exchange) or a capital transaction (a sale, or a barter exchange, which is treated as a sale).

...

The person that gave up the S-Corp in exchange for the property will have a capital gain (or loss depending on his basis) on the S-Corp stock.

...

Then he person that's contributing the property tho THEIR S-Corp doesn't HAVE a taxable event BUT is contributing capital to the S-Corp, which would eventually lower the gain by that amount should he ever sell.

...

The tax here (to be able to report the sale by the person that gave the S-COrp in exchange - and to know how much the receiver is contributing to their S-Corp) is to put a value on the sale.

...

This is always easy when it's a cash sale becasue that bubbles to the top in the negotiations for what that original S-Corp owner would take. But here, the negotiation has already happened. (The sale price should likely be based on some reasonable assessment of what the S-COrp is worth, becasue that's what being sold here)

...

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Customer reply replied 1 month ago
Hi Lane,Thank you for reaching out.

You're very welcome ... This came in the tax area, so I'm guessing the real (or at least the more immediate) question is the tax reporting. This will be on form 8949 and schedule D, and it's treated as a stock sale by the original S-Corp owner.

...

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

I hope you’ll rate me based on accuracy and thoroughness, rather than any good news / bad news content

But again, let me know if you need more here,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,986
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Customer reply replied 1 month ago
Lane,What you wrote makes sense. I am preparing return for the person that gave up the 100% ownership. Therefore, I am not worrying how other (receiving) party handles the transaction. There is no cash booth involved. My client gave up his stock in exchange of property (house) that he will remodel and later transfer to his corporation. It makes sense to treat it on 1040 for now as a capital gain/loss.How do you suggest to handle this case?
-know the value of the stock that client gave up
-know the value of the property he received in exchange
-what forms related to transaction will be used on his 1040?Thank you,
Customer reply replied 1 month ago
Lane, you answered while I was typing. Thank you for your help. This answers my question.I will definitely add you to my favorites!

Sorry, ... and thanks! Yep sounds like you have your arms around it.

...

Thanks again for the rating

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Customer reply replied 17 days ago
Lane, I have found out that the owner that is giving up 100% stock is receiving a property worth $130,000 but also, he is assuming a loan for that amount. Would you please help? How should I report it on 1040?Thank you

We've going pretty far afield off the original question here. Every time I come back to a question that's already rated (we're only credited for a PORTION of what you paid JustAnswer when you rate ... and only once per question) it lowers my compensation per time/effort.

...

I'd ask that you ask this AS a new question.

...

Hope you'll understand...

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Customer reply replied 17 days ago
I am new here. I do not know how it works. I will do so.

Did you see my response on the other question? ... Not sure about the situation. maybe you could rephrase ... what is the loan financing, and who is the lender and borrower.

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Lane
Lane
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Category: Tax
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