S Corp and Real Estate

[Patrick Michael]

I have been reading up on why it is usually a bad idea for an S Corp to own real estate.  Most makes sense but there is one phrase that I'm not understanding.  When it is said that "Contributions of appreciated property into an S-Corporation are subject to tax when the shareholder owns less than 80% of the corporation’s majority vote, and value after the transfer occurs", what does "value after the transfer occurs" mean?

Thanks and Merry Christmas to all.

[DANRVAN]

That means that in order for section 351 to apply, 80% of the stock and 80% of the value of the corporation must be held by the controlling group immediately after the transfer occurs.

Otherwise the transfer of property is considered a disposal under section 1001.

 

 

[DANRVAN]

11 hours ago, DANRVAN said:

and 80% of the value of the corporation must be held by the controlling group immediately after the transfer occurs.

That got to bugging me.  For control purposed of section 351, there is reference to section 368(c) which basically defines control as possessing 80% of all classes of stock.  

 

12 hours ago, Patrick Michael said:

"value after the transfer occurs" mean?

That might apply to certain corporate reorganizations, but not to a  a 351 transfer that I am aware of.

[DANRVAN]

On 12/22/2021 at 7:22 AM, Patrick Michael said:

  Most makes sense but there is one phrase that I'm not understanding.  When it is said that "Contributions of appreciated property into an S-Corporation are subject to tax when the shareholder owns less than 80% of the corporation’s majority vote, and value after the transfer occurs",

I am curious as to where you saw that phrase.

[Patrick Michael]

21 hours ago, DANRVAN said:

I am curious as to where you saw that phrase.

https://engagecpas.com/blog/why-real-estate-shouldnt-be-held-in-an-s-corporation/

[DANRVAN]

7 hours ago, Patrick Michael said:

https://engagecpas.com/blog/why-real-estate-shouldnt-be-held-in-an-s-corporation/

He is partly right.  80% of stock must be acquired for a tax free transfer of property, but there is no requirement to hold 80% of the corporate value.  I didn't not catch that on my first reply.