Posted by Jimmy on May 25, 2008 at 05:58:22:
In Reply to: Stock Sale posted by Gproperties on May 08, 2008 at 14:56:11:
I've seen this many times in my tax law practice, usually from the point of view of the seller.
and I'll bet you a dollar your seller is a C Corp, and not an S Corp or LLC.
here's the most likely reason the sellers want you to buy the corporation: they building is depreciated down to zero, and/or has greatly appreciated, and they will pay a whopping corporate income tax on the gain. no special cap gain treatment for C corps. but if they sell their stock to you, all of the gain they realize is cap gain to be reported on their personal returns, which does qualify for the lower rates.
less likely scenario is that their are contingent liabilities inside the corp which they do not want to take on personally. and neither do you, by the way.
and understand this: if you buy the stock in this corporaiton, your "outside basis" (your basis in the stock you just bought) will be your cost. but the assents insode the corp DO NOT get adjusted. so if you ae buying a corporation for $2,000,000, and all of the value of the purchase is in the real estate, you do NOT get a $2,000,000 depreciation basis in the bldg. you may be getting a ZERO basis, depending on how long the property was inside the corp.
Does this mean the deal is dead? NO. but if your depreciation deductions are going to me limited, you need to adjust your price sharply. and you are taking on an embedded corporate tax liability which wll materialize down the road. that needs to be reflected in another downward adjustment in your price. and you are being forced to step into a double-taxation scenario for the period of time you operate the corporation, an added expense that you would not otherwise take on. this needs to be reflected in another downward adjustment. and the fact that you inherit all liabilities of the corp (known and unknown) definitely gets you another downward adjustment.
before you even think about doing this deal, you need a savvy, gray-haired tax accountant to thoroughly run numbers for you here.
- Re: You do NOT want to buy the stock Penny 09:59:30 05/25/08 (1)
- Well... Jimmy 05:17:38 05/26/08 (0)