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| | {{ForumReplyPost|UserID=KathiJud|Date=25 September 2009|Text=And I agree an LLC is much better entity to hold real estate. Corporate entities are problematic for holding real property.}} | | {{ForumReplyPost|UserID=KathiJud|Date=25 September 2009|Text=And I agree an LLC is much better entity to hold real estate. Corporate entities are problematic for holding real property.}} |
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| | + | {{ForumReplyPost|UserID=Lrussell|Date=25 September 2009|Text=The land will be subdivided and treated as inventory available for sale so possibly a 338 election would be best. The s-corp will have the built-in gains tax to also deal with as the land was previously held in a c-corp so my guess is that I can't distributing the land to an LLC will trigger the built in gains tax now instead of taking upon each sale. }} |
Revision as of 16:04, 25 September 2009
Discussion Forum Index --> Advanced Tax Questions --> Capitalize expenses?
Discussion Forum Index --> Tax Questions --> Capitalize expenses?
Lrussell (talk|edits) said:
| 25 September 2009
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| My client (single member LLC filing a schedule C) is in the business of land development. In 2008 we kept track of his expenses related to the research and costs involved with purchase of a large piece of land. Finally, at the end of 2008, the LLC purchased 100% of the stock of the s-corporation that owned the land. (The s-corporation's only asset was the land). So right now, I have an LLC with around $100,000 of expenses related to this project that I am unsure what to do with. Do I expense them as research expenses or do I somehow capitalize them to land owned by the S-corp?
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Jacko (talk|edits) said:
| 25 September 2009
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| my first thought is the $100k would be outside basis related to the acquisition of the S-corp and therefore not deducted until the shares of the s-corp are sold or liquidated. Because the land is held in an existing S-Corp I don't see the 100k being added to the land basis itself or even to to balance sheet of the s-corp due to the timing of the payments.
Jack
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Bm911tax (talk|edits) said:
| 25 September 2009
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| I think I read your post clearly but I am not sure whether the S corp purchased the land in 2008 and later the LLC purchased stock in S corp in 2008? In any case the S Corp has a capital assets on its books, the LAND. Expenses that were incurred in connection with land purchase are added to the basis. Since land can’t be depreciated, you have 0 income/loss (assuming no other expenses), thus LLC can’t do anything and wait until the S Corp sells the land and realized cap gains.
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Larry0434 (talk|edits) said:
| 25 September 2009
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| Assuming purchase price = land value and land value decreased since purchased. Have S Corp distribute land to shareholder triggering gain/loss and establishing new basis within the LLC. This puts the land in an organization better to set up to hold real estate and/or develop.
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Larry0434 (talk|edits) said:
| 25 September 2009
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| Are you using Rev Proc 92-029 for tax accounting?
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Larry0434 (talk|edits) said:
| 25 September 2009
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| PS: Your research and costs involved in purchase of land sounds like acquistion costs.
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KathiJud (talk|edits) said:
| 25 September 2009
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| Your disregarded entity(LLC) is simply a stockholder and whatever costs were incurred are most likely all outside basis in the S Corp stock. Can't get it on the books of the S Corp without a 338 election and even then wouldn't be worth it unless the land will be treated as inventory and possibly subdivided for sale and you want this basis to be part of the gain/loss calcs. Keeping it as outside basis only affects your shareholder basis worksheets.
See my other recent discussion thread about deducting the interest and/or any loan costs for any debt your stockholder incurred to purchase that S Corp interest.
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KathiJud (talk|edits) said:
| 25 September 2009
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| And I agree an LLC is much better entity to hold real estate. Corporate entities are problematic for holding real property.
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Lrussell (talk|edits) said:
| 25 September 2009
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| The land will be subdivided and treated as inventory available for sale so possibly a 338 election would be best. The s-corp will have the built-in gains tax to also deal with as the land was previously held in a c-corp so my guess is that I can't distributing the land to an LLC will trigger the built in gains tax now instead of taking upon each sale.
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