Property Sale Question

[Silverton34]

I have a manufacturing company that is a C corp and I own all of the stock. I do have a mortgage against the property to the previous owner. The state is buying a half acre of the property to widen the highway. Is this money the property of the business or is it my personal money? Is it taxable? Any accountants here?

 

[bld999]

Whose name is on the check that pays the mort? Property taxes? Liability Insurance?

 

[Silverton34]

It was a stock sale between seller and buyer, me! Seller placed a lein on the real estate for security. All other expenses are paid by the corporation.

 

[Senator]

It is the money for whoever owns the property. Likely the C corp.

You personally can buy the property in question from the C corp, at a mutually agreed upon price, then sell it to the State. Then it is your property being sold.

 

[RE2Boys]

1. Don't confuse yourself with your C corp, they are separate entities.
2. The money will go to the title holder of the property. Is it the C Corp or you personally? Again, don't mix up your thinking.
3. A mortgage is when the property is collateral for a loan when transferring ownership. I sure hope that you had coordinated the sale with the previous owner, otherwise you may be in serious legal problems. Selling of the collateral without coordination with the previous owner could result in the loan immediately due and payable and/or a lawsuit.
4. Whoever the legal owner is, it is a sale of an asset that may involve capital gains or losses, absolutely reportable on an income tax return.

 

[Silverton34]

The legal owner of the property is the corporation, I simply own all of the stock. I borrowed money for the stock from one of the previous stock holders so that is the only debt. I pay monthly payments to him from my personal checking account which is funded by my after tax income. No different than any person buying a share of stock in any corporation but borrowing the money to buy that share of stock. The lender in this case filed a lein on the real estate as a security interest. Our loan agreement says I have to pay any sale proceeds to him but there are no teeth in the contract. My biggest concern here are the tax consequences.

 

[ocean view]

The C Corp is not a pass-thru entity, therefore the sale of the corp’s property is a taxable event for the corp, not you personally. I assume that the corp issues you a W-2 each year for whatever you draw from earnings for your salary? When/if you withdraw that money as salary it becomes ordinary income to you.

 

[ocean view]

Or I guess you could withdraw it as a dividend (1099-div) or return of capital (also 1099 reported, but not taxable income), rather than salary (ordinary income)...

 

[Ronstar]

C corp is not a flow through to the shareholders. Since the property owner is the corporation, the Corp would sell the road ROW to the state.

I’m unclear whether your debt to the former owner is a personal note for the stock or a mortgage tied to the land. If a mortgage, it should be in the corporate name, not personally.

If a mortgage, the state will make sure that there is a partial lien release to make sure that their purchase is free and clear.

So if I understand that the property is owned corporately, the state would buy the property and the corporation would face the tax implications. But I don’t know what the complications are - contact a cpa - I’ve heard that there are different tax rules for sales for highways, pipelines, etc.

 

[pb4uski]

The legal owner of the property is the corporation, I simply own all of the stock. I borrowed money for the stock from one of the previous stock holders so that is the only debt. I pay monthly payments to him from my personal checking account which is funded by my after tax income. No different than any person buying a share of stock in any corporation but borrowing the money to buy that share of stock. The lender in this case filed a lein on the real estate as a security interest. Our loan agreement says I have to pay any sale proceeds to him but there are no teeth in the contract. My biggest concern here are the tax consequences.

Since the corp owns the property then the proceeds from the sale should go to the corp. The corp will then have a gain or loss on sale for the difference between the sale proceeds and the cost of the land that was sold. Since the corp only sold a portion of the land the corp will need to allocate the cost between the portion sold and the portion retained.

IIRC the allocation is tyically done based on the relative fair values of the land sold and the land retained applied to the cost of the entire parcel. While the below isn't totally on point... it is probably indicative of how the allocation would work.

Subdivided lots.

If you buy a tract of land and subdivide it, you must determine the basis of each lot. This is necessary because you must figure the gain or loss on the sale of each individual lot. As a result, you do not recover your entire cost in the tract until you have sold all of the lots.

To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. The numerator is the FMV of the lot and the denominator is the FMV of the entire tract