Farmland held in S-Corp- perpetual easement question.

[Sean Haberman]

Hello,

I am working with a client who has farmland held in an S-Corp (current tax basis is approx. 5% of market value), It seems there is not a way to sell this property without having to pay capital gains, since it is unfortunately held in an S-Corp.

There is an option to sell a perpetual conservation easement to the land while still maintaining ownership of the land. Would the proceeds from the perpetual easement be 1031 exchangeable? If so, would this still cause issue with the S-Corp tax rules?

Looking for any and all options!

Thanks,

Sean

[Dave Foster]

@Sean Haberman, the easement implies a beneficial interest in the land.  Since "perpetual" also crosses the 30 year period that the IRS likes for these kind of things.  It is possible that they could do a 1031 exchange on the sale of the easement.  They will need to get a legal opinion that the easement does create a beneficial interest.  And that risk of loss of that interest has passed to the buyer.