Seller owns an apartment complex in a C Corporation

Rental Property Investor · Phoenix, AZ · Member since 2017 · 7 posts · 5 votes

I am looking to purchase a property and the seller owns three apartment complexes in a C Coporation (He got bad advise). He wants to retire and not 1031 exchange the properties, but does not want to pay taxes twice on the sale. He was told that if he changes the C Corp to an S Corp he must wait 5 years to sell the property. (Not sure if that is true)

He is willing to do a seller carry on the deal, but at a C Corp he would still be taxed twice on the portion of the sale every year. Is there any ways to change the C Corp or to an LLC or any other ways he can sell and reduce his tax liability on the sale?

Any help you could give me would be greatly appreciated.

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Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

S-corp status is just an election you apply for with the IRS, right? If less than a certain gross per year and less than 35 employees (double check all the requirements).

So, what about selling his shares off over a certain number of years and electing to become an s-corp? If these are the only assets and only purpose of the corp, could work I would think. Leave the RE alone, sell the shares.

But.... anytime I go to buy the entity vs the RE or any number of enlarging my box thinking things (@Joe Villeneuve term I love) that run through my brain, I get zilch for advice from 'professionals' and continue to go solo. Maybe I'm dealing with the same idiots that recommended this guy put his RE in a c-corp in the first place LOL.

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y
He should be able to dissolve his corporation somehow, it wouldn't make sense to not be able to dissolve it, even though it may be expensive.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Bryan Ayres, a dissolution may work but Cs are quirky. His best option might be to have the C corp sell and 1031 into some passive NNN properties. Then after the exchange is complete look at transitioning the C corp to S status and as the clock runs passive income continues and more options for down the road will be available. Meanwhile he gets out of the active game and into passive income.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
S-corp status is just an election you apply for with the IRS, right? If less than a certain gross per year and less than 35 employees (double check all the requirements).
So, what about selling his shares off over a certain number of years and electing to become an s-corp? If these are the only assets and only purpose of the corp, could work I would think. Leave the RE alone, sell the shares.
But.... anytime I go to buy the entity vs the RE or any number of enlarging my box thinking things (@Joe Villeneuve term I love) that run through my brain, I get zilch for advice from 'professionals' and continue to go solo. Maybe I'm dealing with the same idiots that recommended this guy put his RE in a c-corp in the first place LOL.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y
@Bryan Ayres

As is - The Corporation would be required to pay 21% tax on the capital gains. The shareholder would then be required to report dividends when distributed.

One way to work around this(and this only works if he has no other income) is to distribute the money over several years when he is in a low bracket so the dividend income is taxed at 0%

There are strategies involved with converting it to an S-corp.

I would also avoid you providing the seller with tax advice. The seller should reach out to a CPA because there are many factors in play.
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