If you have converted from a C corporation to an S corporation it’s important to check the calendar before you sell appreciated real estate.
IRC section 1374 generally creates a five-year recognition period during which pre-conversion built-in gain can still trigger a corporate-level tax. However, selling isn't your only option. A 1031 exchange may provide another path for appreciated real estate.
For qualifying real estate, a 1031 exchange may allow the S corporation to reposition the real property without recognizing that gain today. The built-in gain then carries into the new replacement property through the remaining recognition period.
Before you sell your property, know when the S-corp election became effective. A 1031 exchange may give you another path.
As always, it’s important to work closely with your tax advisor (CPA or accountant) throughout your 1031 exchange. Doing so will set you up for a successful, tax-deferred exchange and help you avoid any avoidable pitfalls that could derail your exchange.
Section 1031 – Your Ticket to Tax Deferral
Section 1031 of the Internal Revenue Code is your ticket to capital gains tax deferral. With a 1031 exchange, you can sell a relinquished property, reinvest your proceeds into a replacement property, and defer your capital gains taxes in the process. At CPEC1031, LLC we have decades of experience facilitating like-kind exchanges in Minnesota and across the United States. Let us help you through the ins and outs of the 1031 exchange process. We can answer your questions, help prepare documentation, and make sure you are well positioned to defer 100% of your capital gains tax burden.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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