Client inherited property in 2008 with 3 other siblings. Each 25% owner. Recently (Oct 2019), they refinanced the property and gave my client 25% of the assessed value of the property to close out his shares. This totaled $555,000. Property is owned by C Corp. Siblings remain as owners one third each (they just retired his shares and not distribute them to others). Is this just a simple refinance with no tax effect or is it a sale of capital stock?
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What was inherited - the property itself or the shares of stock? How and when did the corporation own the property?
You need to determine the FMV of transfer as of date of inheritance.
As a side issue - why would a corporation own real property?Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Waiting to find out the details on the corporation. I asked when did they form the corporation, after the death? Or, was it already incorporated and they inherited shares? He sent me the county assessment history and said the assessed value at time of death was $1.458,000. The assessed value they used when they refinanced was $2,220,000 (not sure why they didn't use an appraiser to determine FMV...Redfin shows the property est value to be more like $2.7 million). I suppose for asset protection purposes, they put it in a C Corp, but I will find out. I did his MFJ tax return last year and there were not dividends or any other income from that property, at least not that he told me. At least you put me on the right track of what to find out. Thank you.Comment
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How was the property registered at time of death? And at time of inheritance? What date was corporation formed?
Assessed valuation has no bearing on the tax implications because it's only used for valuation for real estate tax assessment. It's FMV that is the starting point for determination of gain/loss on disposition.Uncle Sam, CPA, EA. ARA, NTPI FellowComment
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No, it sounds like the client inherited stock of the corporation, not the property.Originally posted by Angie T View Post
The client's basis is the FMV of the stock on the date of death, and then the client sold his stock back to the corporation. So yes, it is a taxable event to the client.
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TaxGuyBill and Uncle Sam , client indicated that the property was already XYZ & Co at the time of the mother's death, when it was created 40 years ago. The siblings were all given equal shares. He indicated that the corporation was formed when the property was refinanced to upgrade and improve the property. He said the sister does not want to share the tax return. I guess he wasn't sharing in the profit if there was one. He said it was his decision to use the assessed value rather than an appraised value for simplicity. He is the eldest and the younger siblings cared for mom prior to her death, so he thinks this is fair. According to the calculation, his capital gain would be $190,500. I think the part that's bothering me is how this "sale" is taking place. It's not like the siblings took their own capital to buy out his share. They are refinancing and giving him his share of the inheritance. So, you are saying it doesn't matter where the money comes from; it's still a sale. They did not issue a 1099 for the transaction (of course, I understand that that doesn't matter; he would still need to report it if it's deemed a sale).Last edited by Angie T; 11-20-2019, 04:25 PM.Comment
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So, the corporation is buying back his shares? Does the corporation have an operating agreemenComment
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#1. Suggest you edit your second post to remove the name of the company (for privacy purposes).
#2. Sounds like a simple buyback of shares by the corporation to me and is a taxable event to your client. It does not matter where the corp got the money to buy back the shares. The refinancing is not a taxable event to the corp.Comment
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