Posted by Penny on May 10, 2008 at 18:02:32:
In Reply to: Stock Sale posted by Gproperties on May 08, 2008 at 14:56:11:
If you are buying stock, it sounds like you are probably looking at buying an S or a C corp that happens to own an apartment building. Brandon already asked you which entity type. I am assuming that it is not an LLC or partnership since you said "corporation" in your post.
Basically, neither an S or C is a good entity choice to hold appreciating assets. S corp profits flow through and are taxed at ordinary income rates. However, losses can offset ordinary income. C-corps pay their own taxes, then you pay taxes again on distributed dividends (the double taxation thing).
For the sellers to just sell the stock, they would still be subject to capital gains, so I'm not sure why they are hung up on selling the stock. That is, unless it is a C-corp and is qualified small business stock. Sales of qualified small business stock can be reinvested in other qualified small business stock and the gains can be fully or partially deferred, if you follow the IRS rules. Kind of like a 1031 exchange, so to speak.
However, when an asset is sold by a corporation, there are definitely tax hits.
(See IRS publications 550 and 544 or ask your CPA for the gory details).
If I were contemplating acquiring a company for an asset that I wanted, in addition to the financials and performance of the asset under consideration, I'd be looking at
- the costs to change the entity type to an appropriate structure,
- associated tax hits due to the entity structure change and any other asset dispositions that came with the company,
- resulting tax basis of assets as a result of the stock purchase and
- everything else about the company including contracts, obligations, pending lawsuits against the company, et. al. so I know what is coming with the property.I'd also be estimating the tax hits to the sellers for the stock sale versus asset sale as negotiating info. Particularly if they are eligible for the rollover.
To do that, you'll need a really good CPA, tax attorney and/or tax strategist.
Hope this helps!
- Re: Ack! Stock Sale Gproperties 08:53:07 05/15/08 (0)