Personal Residence Sale included in Corporate Owned Farm Sale

[Cebar]

The taxpayer owns the corporation. Taxpayer purchases dairy farm with brick dwelling in name of corporation. Taxpayer lives in brick dwelling, but since taxpayer is an employee of corporation, CPA puts brick residence on depreciation as "tenant house". Taxpayer has lived in house, has been given homestead exemption status on residence with county tax board since 1998, Taxpayer now selling dairy farm. Can he somehow let the corporation deed the residence to him prior to the sale, then he sell the house and take the 121 exclusion since he has "lived in the house as his personal residence" for 10 years? How would the corporation treat the transfer?? As a dividend?? A sale?? How would his basis be determined? Is this even possible? How is the best way for the taxpayer to sell the dairy farm for the best tax advantage?

[outwest]

Well, the individual must both...

live and OWN the personal residence for two of five years before the sale. Deeding out of the corp won't solve that problem, let alone the corp must treat the property distribution as a sale a fair market value anyway.

The taxpayer took advantage of a favorable structure to reduce taxes in all those prior years. They are now stuck with the consequences in the year of sale.

How is the best way to sell the dairy? Sell the stock in the corp that owns the dairy. Take tax on capital gains and get out of Dodge. Probably be tough to find a buyer willing to do that without a big discount on price because the buyer is assumes the big tax hit.

They made their bed and now must lie in it. (Couldn't resist)

[erchess]

Not sure

The only things I am sure of are that the Corporation can sell everything with depreciation recapture and that if it does there is no exclusion. II don't know whether any other treatment is possible.

I think you should advise the client to seek the advice of a Tax Attorney in regard to suing the CPA for Malpractice in that he put real estate in a corporation.The normal way to set things up would have been to let the corporation own the movable property and lease from the taxpayer only the property actually used in farming operations. The company would conduct the farming operations and own the profit or loss.