Clarification: **In minute 11:20 I gave an example "Let's say 2 years down the road..." Saying 2 years was a wrong example as you can still use the exclusion if you lived in a home 2 out of 5 years and you would not need a sale via S-Corporaiton. The example should have been "Let's say 5 years down the road..." It is really important that you ONLY use this tax strategy with the help of the tax professional. Thanks! Make sure you check out these links. 🆓 Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know: bit.ly/download7TaxWriteOffs ☎ Schedule your FREE Tax Advisory Session - www.TaxPlanningCall.com 👉 Make sure you SUBSCRIBE so you do not miss out on future tax-saving tips and strategies - bit.ly/3AXHUtM
So I understand that you can fund the downpayment in the S corp from your own funds, how are you going to get a loan for the remainder of the equity to realize the tax free gains? In my opinion no bank will loan to a brand new s corp with no business plan other than to rent the house.
Same question as I have. The S Corp is basically buying the equity. If you only pay 10 percent as down payment then is the other 90 percent is considered a gift to S corp? If it’s not a gift, or an installment sale, then what gives?
@@MrNwieschhaus that is why they are using a wrap around mortgage or a contract for deed! However, my only doubt is, the Tax payer being the owner or S-holder of the S-corp, will the section 121 exclusion apply here? is what I doubt.
The 90% is seller-financed. The S Corp services it’s debt to you from its positive cash flow. No bank is involved. If you have an outstanding mortgage personally on the property, then he is talking about the S Corp stepping into the shoes of the owner…so cash flow has to be sufficiently positive to pay the debts
Can you please provide with IRS code that talks about it? Also, when you "sell" to the s-corporation $750K, doesn't the s corp needs to take another mortgage to pay me (the seller)? At the end, when s corp sells the house for $1M, how does the gain of $ 250K paying tax? are you saying that you can apply the personal exclusion against it and avoid paying taxes?
You cannot claim the Section 121 exclusion of gain on a sale to a related party. (B)Exception for sales to related parties Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).
@@CptUSMC It seems to me that the transfer of title would either occur after the mortgage is paid off or upon sale of the house. It would have nothing to do with the date of death of the owner/Tennent and applying remainder interest would imply that the owner would plan to still live in the property. In the beginning of the video, he clearly states that the point is to rent out the home after upgrading your home. Just to back you up, Publication 523 clearly only states related party twice, and in the same sentence clearly referring to remainder interest. Even though tax professionals have been historically told not to rely on publications, I think this is pretty clear both in tax law and publications. After my research, I say that Section 121 would allow this. Good strategy from Boris, always awesome to learn from him!
@@aussmith4751 I actually just spoke to someone at the IRS Office of Chief Counsel and they're initial thought was that this may be OK; that they couldn't think of an issue. But they are going to do more research and let me know more definitively.
The initial FMV: 750,000 will be depreciated by 3 years x $27K. So the True Captial Gain is 1,000,000 - (750,000 - 26,000 - 27,000 -27,000) = 330,000! Right? Also, if the deed is just on the husband only. Given the wife lives with the husband, can the same house consider to be a marital family residence subject to $500K capital gain write-off?
This wouldn't work for a single member LLC because it would just be a disregaurded entity? If allowed by section 121 regarding related party transactions, they would want to be intentional in selling the property in their lifetime. Property held in S corporation do not get a step up in basis. Also, if they change their mind and transfer the property out, they would be subject to a gain again as the asset would come out at FMV if distributed. I can see it as a viable strategy with the understanding that the benefits are limited to the event of a sale within their lifetime. Im a CPA myself. Thoughts?
Agreed, once it’s in the S-Corp, it’s stuck. However, while it is true that the property does not get a step up in death, the stock does get a set up. The key is to liquidate the corp in the same year as the sale. This way the loss from the stock will offset the passthrough gain, hopefully netting to “zero”. I briefly looked into this and it appears section 121 is disallowed if it is a sale of a remainder interest between related parties. It does not appear that the related party rules stop the exclusion. But I would want to do more research before doing this.
@@CptUSMC Beautiful response. Thanks for the information! I completely agree with your conclusion regarding step up in Basis. The people who are unaware though must be disappointed if they accidentally generate a capital loss by delaying liquidation. Especially if they have no other LTCG to offset, they would just be stuck with the $3,000 they could use each year against ordinary income. Of course, just more of a reason that you need a tax strategist to make sure these strategies are implemented correctly. For section 121, I was trying to find a video by the Tax Smart Real Estate Investors that confirms the strategy. I did however find a video where they discussed the strategy and said it was doable. They are good because they typically will reference the authoritative literature and tax court cases. I'm sure they have a video on this specific strategy's, but the search function isn't very helpful. If I find any more information, I'll be happy to share! Cheers!
@@CptUSMC Beautiful response! Thank you for the information. I completely agree with you regarding the step up in basis and timing the stock liquidation with the same year as the sale of the property. It must be a bummer if the heirs are unaware and sell the property and delay liquidation. If they have no other LTCG, they may create a capital loss limited to $3,000 against ordinary income. Just another reason to have a tax strategist to implement these strategies. In regards to section 121, I was trying to find a video by the Tax Smart Real Estate Investors. I haven't yet, but have heard them briefly discuss this strategy and it being an exception to excluding property ownership from an S Corp. They typically will reference the authoritative literature and tax court cases regarding this. I was hoping to find a video on the topic to narrow the research, but the search function is not very helpful. I do however suspect this to be a viable tax strategy, as I trust both Boris and the Tax Smart Real Estate Investors (Brandon Hall). If I find any more information, I would be happy to share! Cheers!
Clarification: **In minute 11:20 I gave an example "Let's say 2 years down the road..." Saying 2 years was a wrong example as you can still use the exclusion if you lived in a home 2 out of 5 years and you would not need a sale via S-Corporaiton. The example should have been "Let's say 5 years down the road..." It is really important that you ONLY use this tax strategy with the help of the tax professional. Thanks!
Make sure you check out these links.
🆓 Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know: bit.ly/download7TaxWriteOffs
☎ Schedule your FREE Tax Advisory Session - www.TaxPlanningCall.com
👉 Make sure you SUBSCRIBE so you do not miss out on future tax-saving tips and strategies - bit.ly/3AXHUtM
Amazing! Thanks for the explanation. However, I did not find the implementation guide in pdf ☹️
So I understand that you can fund the downpayment in the S corp from your own funds, how are you going to get a loan for the remainder of the equity to realize the tax free gains? In my opinion no bank will loan to a brand new s corp with no business plan other than to rent the house.
I have the same question?
Same question as I have. The S Corp is basically buying the equity. If you only pay 10 percent as down payment then is the other 90 percent is considered a gift to S corp? If it’s not a gift, or an installment sale, then what gives?
@@MrNwieschhaus that is why they are using a wrap around mortgage or a contract for deed! However, my only doubt is, the Tax payer being the owner or S-holder of the S-corp, will the section 121 exclusion apply here? is what I doubt.
The 90% is seller-financed. The S Corp services it’s debt to you from its positive cash flow. No bank is involved. If you have an outstanding mortgage personally on the property, then he is talking about the S Corp stepping into the shoes of the owner…so cash flow has to be sufficiently positive to pay the debts
Can you please provide with IRS code that talks about it? Also, when you "sell" to the s-corporation $750K, doesn't the s corp needs to take another mortgage to pay me (the seller)? At the end, when s corp sells the house for $1M, how does the gain of $ 250K paying tax? are you saying that you can apply the personal exclusion against it and avoid paying taxes?
You cannot claim the Section 121 exclusion of gain on a sale to a related party. (B)Exception for sales to related parties
Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).
But subparagraph A is regarding sales of remainder interests. Do you think a wraparound mortgage qualifies as a remainder interest?
@@CptUSMC It seems to me that the transfer of title would either occur after the mortgage is paid off or upon sale of the house. It would have nothing to do with the date of death of the owner/Tennent and applying remainder interest would imply that the owner would plan to still live in the property. In the beginning of the video, he clearly states that the point is to rent out the home after upgrading your home. Just to back you up, Publication 523 clearly only states related party twice, and in the same sentence clearly referring to remainder interest. Even though tax professionals have been historically told not to rely on publications, I think this is pretty clear both in tax law and publications. After my research, I say that Section 121 would allow this. Good strategy from Boris, always awesome to learn from him!
@@aussmith4751 I actually just spoke to someone at the IRS Office of Chief Counsel and they're initial thought was that this may be OK; that they couldn't think of an issue. But they are going to do more research and let me know more definitively.
The initial FMV: 750,000 will be depreciated by 3 years x $27K. So the True Captial Gain is 1,000,000 - (750,000 - 26,000 - 27,000 -27,000) = 330,000!
Right?
Also, if the deed is just on the husband only.
Given the wife lives with the husband, can the same house consider to be a marital family residence subject to $500K capital gain write-off?
Why must chose to sell to s corp? But not a partnership?
My only question is: can this be a partnership?
Can you rent your house back for 20 years and still use this strategy?
If I rent it myself from my own s-corp, does the self rental rule apply ?
No. Self Rental Applies when you have a operating company renting from a property that is wholly owned by the owner(s) of the operating company.
This wouldn't work for a single member LLC because it would just be a disregaurded entity?
If allowed by section 121 regarding related party transactions, they would want to be intentional in selling the property in their lifetime. Property held in S corporation do not get a step up in basis. Also, if they change their mind and transfer the property out, they would be subject to a gain again as the asset would come out at FMV if distributed. I can see it as a viable strategy with the understanding that the benefits are limited to the event of a sale within their lifetime. Im a CPA myself. Thoughts?
Agreed, once it’s in the S-Corp, it’s stuck. However, while it is true that the property does not get a step up in death, the stock does get a set up. The key is to liquidate the corp in the same year as the sale. This way the loss from the stock will offset the passthrough gain, hopefully netting to “zero”.
I briefly looked into this and it appears section 121 is disallowed if it is a sale of a remainder interest between related parties. It does not appear that the related party rules stop the exclusion. But I would want to do more research before doing this.
@@CptUSMC Beautiful response. Thanks for the information! I completely agree with your conclusion regarding step up in Basis. The people who are unaware though must be disappointed if they accidentally generate a capital loss by delaying liquidation. Especially if they have no other LTCG to offset, they would just be stuck with the $3,000 they could use each year against ordinary income. Of course, just more of a reason that you need a tax strategist to make sure these strategies are implemented correctly.
For section 121, I was trying to find a video by the Tax Smart Real Estate Investors that confirms the strategy. I did however find a video where they discussed the strategy and said it was doable. They are good because they typically will reference the authoritative literature and tax court cases. I'm sure they have a video on this specific strategy's, but the search function isn't very helpful. If I find any more information, I'll be happy to share! Cheers!
@@CptUSMC Beautiful response! Thank you for the information. I completely agree with you regarding the step up in basis and timing the stock liquidation with the same year as the sale of the property. It must be a bummer if the heirs are unaware and sell the property and delay liquidation. If they have no other LTCG, they may create a capital loss limited to $3,000 against ordinary income. Just another reason to have a tax strategist to implement these strategies. In regards to section 121, I was trying to find a video by the Tax Smart Real Estate Investors. I haven't yet, but have heard them briefly discuss this strategy and it being an exception to excluding property ownership from an S Corp. They typically will reference the authoritative literature and tax court cases regarding this. I was hoping to find a video on the topic to narrow the research, but the search function is not very helpful. I do however suspect this to be a viable tax strategy, as I trust both Boris and the Tax Smart Real Estate Investors (Brandon Hall). If I find any more information, I would be happy to share! Cheers!