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Tax Free Election on Sale of personal home

Sent to Legal Experts June 2 2005 at 12:16 PM
   

Husband and Wife are sole shareholders in corperation and have lived in home owned by the corperation for the past 8 years. If the home is sold can the tax free election be used or do they have to pay caital gains on the gain of the sale.

Customer (name blocked for privacy)
Status:  Closed   Value: $5
Answer
June 2 2005 at 12:20 PM (3 minutes and 55 seconds later)
         
REPLIEDCheck Mark

The requirements for the exemption are that the selling taxpayer must have "lived in and owned" the house as their principal residence for two of the five years immedicately preceding the sale. Therefore, this sale would not qualify.

jon@jonacpa.com



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June 2 2005 at 4:59 PM (4 hours and 39 minutes and 1 second later)
         
Reply to jonacpa's Post: We did live in the house 2 of the last five years
Customer (name blocked for privacy)
Answer
June 2 2005 at 5:20 PM (20 minutes and 48 seconds later)
         
REPLIEDCheck Mark

The seller must be the owner of the property. You stated that the corporation owned the home. This disqualifies the sale form the exemption.

jon@jonacpa.com



Helping individuals and businesses nationwide reduce taxes and increase profits through sound planning and quality service

jonacpa -- CPA -- 100% Positive Feedback on 29 Legal Accepts
Answers to legal questions - not legal advice.
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June 2 2005 at 5:53 PM (33 minutes and 24 seconds later)
         
Reply to jonacpa's Post: I also stated husband and wife were sole share holders. Corperation held title to residence but residence did not yield any income to the corperation or taxpayers and residence served served no business purpose of the corperation or taxpayers. Futhermore, taxpayers(individually or as shareholders of the corperation) owned 100% of the residence during the period the corperation held title to the residence and have taken no business deductions(such as depreciation deductions) with respect to the residence. I need to know if their has been legal ruling in the courts concerning this matter.
Customer (name blocked for privacy)
Answer
June 2 2005 at 6:21 PM (27 minutes and 43 seconds later)
         
REPLIEDCheck Mark

There have been several rulings in court cases relating to the personal use of corporate owned property. Generally, in the situation you have described, the shareholders have been found to have received "dividend income" or "compensation income" if they have had the use of corporate property without having compensated the corporation for that use.

The assets do not "pass through" ownership to the shareholders; the corporation is a separate legal entity.

This is WELL-ESTABLISHED tax law. Any time that you attempt to attribute ownership of corporate assets to the individual shareholders you not only put yourself at risk for additional tax problems, you put the corporation at risk for having the corporate veil pierced and, thereby, risking the entire setup.

jon@jonacpa.com



Helping individuals and businesses nationwide reduce taxes and increase profits through sound planning and quality service

jonacpa -- CPA -- 100% Positive Feedback on 29 Legal Accepts
Answers to legal questions - not legal advice.
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June 2 2005 at 7:12 PM (51 minutes and 16 seconds later)
         
Reply to jonacpa's Post: I am not accepting this as my answer.
Customer (name blocked for privacy)
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June 3 2005 at 3:58 AM (8 hours and 46 minutes and 23 seconds later)
         
I want to see some case law rulings on this matter . It has surely has been contested in court.
Customer (name blocked for privacy)
Answer
June 3 2005 at 11:30 AM (7 hours and 31 minutes and 18 seconds later)
         
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jonacpa -- CPA -- 100% Positive Feedback on 29 Legal Accepts
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