Discussion:1031 exchange for business
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Discussion Forum Index --> Advanced Tax Questions --> 1031 exchange for business
Discussion Forum Index --> Tax Questions --> 1031 exchange for business
Dudescpa71 (talk|edits) said: | 26 October 2007 |
| A client of mine, C-corp, recently sold their business, a diner. There are two shareholders, one is purchasing a similar business and the other is taking the cash. When they sold the business, they sold the assets, not the stock of the corporation. The one shareholder purchasing the similar business identified the property in 45 days, is using an intermediary and is expecting to close in 180 days or less. In this situation, can a Section 1031 be used or must the corporation pay tax on the sale of the business assets?
I appreciate any help provided. | |
| October 26, 2007 | |
| I can see a number of problems.
You say the corporation sold the assets yet the shareholder is using an intermediary, identifying property, etc. With certain exceptions that do not seem to apply here, the owner of the relinquished property has to be the owner of the replacement property. | |
Doug Phillips (talk|edits) said: | 26 October 2007 |
| I agree with Jim. The shareholders did not sell anything. Therefore, the shareholders have no 1031 options. It is the corporation that must do the 1031. Your question is phrased as such, that you think each shareholder has a portion of the sales proceeds and can do what they want with it. This is not the case. The corporation owns 100% of the sales proceeds.
You say one is purchasing a "similar" business. "Similar" may not qualify. Typically a business such as diner has various assets to be sold: Inventory, equipment, realestate, GOODWILL. It is very unlikely that the business identifed has exactly the same dollar amounts in each asset category as the one you sold. Also remember that your goodwill is not "like kind" of someone else's goodwill. | |
Dudescpa71 (talk|edits) said: | 27 October 2007 |
| Thanks guys for your help. After doing some additional research, I, unfortunately have to agree with that the 1031 exchange will not apply. What I found out is this. One of the owners purchased under a new corporation a banquet hall. If I'm correct, the fact that the existing corporation did not purchase the new business, eliminates the exchange.
Let me pose this question, if the existing corporation made the purchase of the new business, would the exchange apply at all? | |
| 27 October 2007 | |
| no - there must be an exchange - not a sale and purchase, for 1031 to apply. | |
| 27 October 2007 | |
| And please, NEVER let a corporation buy, or own, any real estate (exceptions apply, but I'm too tired to go into them). Also, like-kind exchanges are about the type of property, not the type of business (for the most part).
Mike | |
