Taxable Gain for GA Property Sale

[Richcpaman]

Here's the sitch:

T/P, a MD resident Corp, did a 1031 Exchange of property in MD and reinvested in GA.

Owned/rented property in GA for 4 years.

Due to the 1031 exchange, he had a low basis in the property in GA.

In 2007, he sold the GA property in another 1031 exchange, and reinvested the proceeds in MD.

He did take some boot, about 750K, to be taxed on federal return. Rest of gain, $1m, was deferred on federal.

Does GA follow the same rules as the Fed, and only taxes the Boot taken by the Non-Resident corp? Or does it want all the gain in Ga taxed because the proceeds were reinvested out of state?

And if they do tax the proceeds going out of state, Can I adjust the basis to the amount Paid for the GA property, plus closing costs? Ignoring the original 1031 exchange for this calc?

Any Thoughts?

Rich

[Bees Knees]

According to TTB All States Edition, page GA-2, Georgia starts with Federal AGI. It then applies additions and subtractions that are due to differences between Federal rules and GA rules. I don’t see any addition that makes you re-calculate gain due to a 1031 exchange. I would take that to mean if you do a 1031 exchange on the federal, it carries over as well to GA.

Those rules, of course, apply to individuals. Corporation rules for state are not always the same.

I’m not, however, a GA tax preparer, so don’t take my word for it.

[ChEAr$]

However

According to TTB All States Edition, page GA-2, Georgia starts with Federal AGI. It then applies additions and subtractions that are due to differences between Federal rules and GA rules. I don’t see any addition that makes you re-calculate gain due to a 1031 exchange. I would take that to mean if you do a 1031 exchange on the federal, it carries over as well to GA.

Those rules, of course, apply to individuals. Corporation rules for state are not always the same.

I’m not, however, a GA tax preparer, so don’t take my word for it.

Bees Knees, OP said his client is a Maryland (pronounced "Murry-land") corporation.

My guess is that when the property in Georgia was acquired, the Maryland corporation
did not register as a foreign corporation in Georgia. If it now files a corporate return
in Georgia, "they" will wonder why.

Can of worms. There is an easy way out of course. (grin)

[Golden Rocket]

Whoaa!

I don't think we can assume the MD corporation never filed on the GA property.

If Rich the CPA has been doing taxes for this MD corporation, it is almost axiomatic that he reaches some point in the corporate return that requires a multi-state allocation. Having been confronted with this, he can file all the property as MD property if he dares, but knows that overpayment to MD will not save him from GA taxes if he's caught.

Additionally, real estate transactions are heavily recorded in state subdivisions (counties, parishes, or incorporated cities). Even if the taxpayer would risk ignoring this, I don't believe Rich would.

Multi-state allocations typically consume several pages on state corporation returns. It would stretch the imagination to believe someone would accidentally miss it.

Good n' Shawn in Atlanta, and GeekGirl are known Georgia preparers. They are better prepared than myself to answer the original question.

[geekgirldany]

I assume that they have been filing non-resident returns with Georgia to report the rental income? I think that if they have then it will just flow through their personal with that sale being listed on the Georgia return.

I don't know alot about foreign corporations. Just that the secretary of state websites says you may have to register or you may not. It all depends on what OCGA 14-2-1502 says. From my research not much... atleast on the internet.

I've listed below some information I found on the internet about it. I would think what I listed below about a partnership would also apply to a corporation. But I can't find anything in the corporation booklets about it.

Here is some information I found on the Georgia website:

From Partnership Booklet dated 2005:
Repeal of the gain recognition provisions regarding “likekind”
exchanges having out-of-state replacement
property. Retroactive for tax years beginning on or after
January 1, 2004, O.C.G.A. § 48-7-27(b)(6) is repealed.
Because Georgia law is now silent, all applicable federal
provisions under the Internal Revenue Code will govern.

http://www.etax.dor.ga.gov/inctax/2005_forms/TSD_Partnership_Income_Tax_Forms_and_Instructions_Booklet_IT711_2005.pdf

From S-Corp Booklet dated 2006:
For net worth tax purposes, a domestic corporation is a
corporation or association created or organized under the
statutory laws of Georgia. A domesticated foreign corporation
is a foreign corporation which has agreed under the provisions
of Georgia law to be treated as a domestic corporation and to
be taxed based upon total net worth.

http://www.etax.dor.ga.gov/inctax/2006_forms/TSD_S_Corporation_Income_Tax_IT611S_2006.pdf

More information about foreign corporations:

http://sos.georgia.gov/corporations/faq.htm

[Richcpaman]

Yes, NR returns have been filed for the GA Subs.

Gang:

Yes, the GA LLC subs that owned the property, have filed thier returns every year as required. And they are properly chartered in GA.

PIA filing those it was, but, it was done as needed.

Just trying to determine what basis I get to use.

IF allowing the Like Kind, and the transfer out of the proceeds of the sale, then GA will get tax dollars on the boot left over in the transaction. And MD will allow the credit.

Absent any other info, I will go with that.

GeekGirl: Thanks for the citation, I am doing further research.

Rich

[wexeter]

1031 Exchange of GA property

GA used to require that property sold in GA was replaced with like-kind replacement property also located in GA. It changed that law a couple of years ago, so you can now sell rental property in GA and then acquire like-kind replacement property outside of GA and still defer Federal and State taxes.