nol corp as rental company?

[WITAXLADY]

Interesting thought - am I wrong?

So I have a 1120 corporation with a NOL carryforward - going to expire in as couple years..cf from 2009

He is in real estate as well. 'His wife is selling a rental and is looking to do a 1031 exchange or wondered if he should put the rental into a corporation before he sells?

Will be a gain. then if that works I would say no 1031 ...

Couldn't this be put into the 1120 and the gain be netted agianst the NOL? Too simple? He would have to pay a transfer fee?

Could he not use the corp for Rentals?

I normally do not like real property in corp but in this case - with the NOL..

Comments, Thoughts?

It is about $55,000

[Lee B]

Depending on which year the NOL arose, the stimulus bill resurrected a 5 year carryback for NOLs !

[WITAXLADY]

2009

[DANRVAN]

10 hours ago, WITAXLADY said:

Couldn't this be put into the 1120 and the gain be netted agianst the NOL?

Are you saying husband owns corporation and wife owns the rental?

I see complications.

There would have to be a Section 351 transfer to avoid tax by wife upon transfer.  I believe wife would then have to own 80% of stock immediately after transfer.

Also any debt assumed by the Corporation could be considered boot paid to wife subject to tax.

I would have to think long and hard about it.

[DANRVAN]

25 minutes ago, DANRVAN said:

I would have to think long and hard about it.

And a little voice says something about tax avoidance transaction.

[WITAXLADY]

thx - WI is community property  - does that make a difference? 

[DANRVAN]

11 hours ago, WITAXLADY said:

thx - WI is community property  - does that make a difference? 

The issue is there are two separate legal entities involved; the taxpayer and the corporation.  The transfer of the rental to the corp would be a taxable transaction unless it is done under section 351.

Section 351 is most commonly used with the formation of a corp where the shareholder transfers assets in exchange for 80% or more of the stock.  I don't think that will work in your client's situation.

[Max W]

If there is a mortgage on the rental, the lender could call in the loan if the title is changed to the corp.  

[DANRVAN]

2 hours ago, Max W said:

If there is a mortgage on the rental, the lender could call in the loan if the title is changed to the corp.  

There is still a transfer between two separate entities, resulting in a deemed sale unless it is structured under section 351.

In that case, even if there was a valid 351 transfer, the liability assumed by the corp is considered boot and taxable under section 357(b)(1).

Section 357(b)(1) kicks in where there is either a tax avoidance or a non-business motive.  In this situation there is obviously both.

[DANRVAN]

2 minutes ago, DANRVAN said:

There is still a transfer between two separate entities, resulting in a deemed sale unless it is structured under section 351.

In that case, even if there was a valid 351 transfer, the liability assumed by the corp is considered boot and taxable under section 357(b)(1).

Section 357(b)(1) kicks in where there is either a tax avoidance or a non-business motive for the transfer.  In this situation there is obviously both.

 

[DANRVAN]

On 4/21/2020 at 10:16 AM, WITAXLADY said:

So I have a 1120 corporation with a NOL carryforward - going to expire in as couple years..cf from 2009

Is this an ongoing operation?

Would client recognize a capital loss from liquidation of the corp that could offset the gain from the rental?

On 4/24/2020 at 7:07 PM, WITAXLADY said:

thx - WI is community property  - does that make a difference? 

I do not practice in a community property state so could not tell you off the top of my head.  My guess is that the rental and the corporation stock would still need  to be under the ownership of the same spouse for a valid 351 transfer.  I don't think gifting is appropriate in this situation, but would not say for sure without researching the issue.

[WITAXLADY]

now that is an interesting idea? every year he was filing to carry the NOL forward.. no activity - "saving" it for a new venture someday...

D