The S-Corp issue is a problem in a drop and swap 1031 exchange. In this article, we are going to discuss some of the issues that can arise when it comes to 1031 exchanges and S-Corps.
The S-Corp Problem
Why do S-Corps present an issue when dealing with a 1031 exchange? It is much more difficult to reconfigure the ownership of the relinquished property by distributing out tenant-in-common interests from a corporation because generally the value of the property that is distributed (that is not considered a dividend) is applied first to reduce the shareholder’s basis in the corporation’s stock. Any remaining portion is treated as gain from the sale or exchange of distributed property. This does not lead to a good result from a 1031 perspective.
If the owners are in a partnership, we have much better options when it comes to 1031 exchanges of property. As always, it’s a good idea to start early if you want to explore your 1031 exchange options. Reach out to a qualified intermediary today to discuss your options.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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