What is a 351 transaction?

A transaction involving Section 351 of the Internal Revenue Code is a straightforward means for an individual to transfer property to a corporation in exchange for stock without recognizing a gain or loss. The transfer of property must be made in exchange for stock in the corporation.

What qualifies as a 351 transaction?

Section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in § 368(c)) of the corporation.

Why is a 351 transfer not taxable?

P2′ s transfer qualifies for tax-free treatment under Sec. 351 because P2 has acquired 80% of the total combined voting power of all classes of stock entitled to vote, and there are no other classes of shares. P2′ s ownership of the Class B shares dilutes or diminishes P1′ s voting power.

What is the definition of control for purposes of section 351?

Control means ownership of at least 80 percent of all classes of the corporation’s stock and at least 80 percent of the total voting power of all classes of stock. See Meeting the 80-Percent Control Test for Section 351 Transfers.

When determining the shareholder basis of stock received for property in a 351 transaction?

351, the transferors obtain basis in the stock of the transferee corporation equal to the basis of all property exchanged: (1) decreased by the fair market value (FMV) of any boot received and the amount of loss recognized on the exchange; and (2) increased by the amount treated as a dividend, if any, and the amount of …

Does 351 apply to S corps?

In the case of a contribution of appreciated property to an S corporation in order to obtain tax deferral, IRC section 351(a) requires that the transferor shareholder, along with all other shareholders making contemporaneous contributions of property, control the corporation immediately after such transfer, and IRC …

Does 351 apply to LLC?

In a section 351 transfer the seller contributes his LLC interests (or the LLC’s assets) to a new corporation, and the buyer contributes stock (or other property) to the new corporation, and if together the seller and the buyer control more than 80% of the new corporation, then the transfer is tax-free.

Does section 351 include cash?

Additionally, Cash Is considered property for purposes of Section 351.

Does 351 apply to cash contributions?

Section 351 will apply to A, because both A and B will contribute property (the cash contributed by B is property for purposes of Section 351) to Newco solely in exchange for Newco stock, and they will own stock constituting control of Newco immediately after the transaction.

Can gain ever be recognized in a 351 transfer if boot is not received explain?

Can gain ever be recognized in a § 351 transfer if boot is not received? Yes. In general, realized gain is recognized in a § 351 transfer when a taxpayer receives property other than stock (i.e., cash or other “boot”) from the corporation.

What is an investment company under 351?

An investment company is defined under IRC Section 351(e)(1) as a company holding at least 80% of its assets in stocks, securities, cash, notes, options, foreign currency, certain financial instruments, interests in REITs, and ownership in entities holding such assets.

Is there any depreciation recapture under a Code Sec 351 exchange?

In a Section 351 transfer in which no boot is received and, therefore, no gain is recognized, there is no recapture of depreciation.

When a taxpayer transfers property subject to a mortgage?

When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351, the transferor shareholder’s basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property.

What is corporation’s basis in the transferred property?

According to IRS Publication 551, the company’s basis in the donated property is the smaller amount of either its fair market value or the shareholder’s adjusted basis. Adjusted basis is the original cost of the property plus any improvements, plus any purchase costs, plus any selling costs, minus any depreciation.

Can I sell my house to my S corp?

If your home has appreciated in value since you bought it, you can get both some tax-free income using the $250,000/$500,000 exclusion and a step-up in your depreciation basis by selling your home to your S corporation.

What happens if appreciated property is distributed from a corporation in liquidation?

So what happens if a corporation (C Corp or S Corp) distributes property or stock other than cash to a departing shareholder? The corporation will recognized gain (not loss) if the fair market value (FMV) of the property exceeds its adjusted cost basis (Sec. 311(b)(1)).

How do I transfer assets from sole proprietor to corporation?

When you are transferring assets from your proprietorship to your corporation, you should do so only under the provision of Section 85 of the Income Tax Act. You have to do this and you have to file the related Section 85 forms.

What happens to assets in a sole proprietorship if it changes to a corporation?

Converting from sole proprietorship to a corporation protects your personal assets by setting it apart from your business assets. In case of potential bankruptcy or a lawsuit filed against your company, your personal assets will no longer be put at risk. The same applies when you’re transitioning into an LLC.

Can I convert my sole proprietorship to a corporation?

As your business grows, you may choose to change its legal structure from a sole proprietorship to a corporation. This change offers many advantages, including limited liability and increased flexibility for financing and tax planning.

Can a corporation own a house in Canada?

The Right Way – How to buy a home with a Corporation in Canada. The right way to purchase a home is to use an Employee Home Purchase Loan. Your corporation makes a tax-free loan to you. The loan must be supported by a written agreement and there must be a mortgage in place.

Can I sell my house to my corporation Canada?

Corporation. For income tax purposes, you can transfer personal property to a Canadian corporation for an elected amount. This amount may be different from the FMV, as long as you meet certain conditions.

Can I live in a house my company owns?

Companies and Residential Tenancies

Property can be rented by a company as a ‘residential tenancy’. Of course, a company cannot live in the property itself.