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Convert Real Estate or Businesses Into Corporate Equity (Common Stock) - Then Convert Into Tax Free Income
Did you know that there is a way to convert real estate or business holdings into tax-free income? The process is fully approved by the IRS and available to anyone but is only known to a few on how to structure the transaction.
How To Get $10 Million In Tax-Free Income
This process involves utilizing various IRS code sections to structure the transactions and then over a period of five years scrutinizing business operations to make sure that all of the IRS rules are followed to permit the tax-free sale. When the specific tax structuring and monitoring is employed, it can produce up to $10 million of tax-free gain at the end of five years.
What Type of Real Estate Can Be Used? What Type of Business Does It Require?
This process would permit any type of real estate to be utilized and it would permit virtually any type of business entity also to be converted over into the C Corporation.
How Do I Transfer Real Estate Into The Business?
The property is transferred to the C Corporation in exchange for newly issued common stock of the C Corporation. There is a monitoring process over a five-year period to make sure all IRS rules are followed to make sure that after five years the stock qualifies to be sold for a tax-free gain.
The corporate stock must be held for a period of five years according to the Qualified Small Business Stock (QSBS) rules. After six months of initial holding of the corporate stock it can be sold and transferred into another corporation’s stock to continue the five-year holding period. There are certain requirements for the C Corporation as to the assets it can and cannot hold and for the businesses that it can and cannot participate in and operate. This must be monitored by a knowledgeable party to make sure that over the five years the stock will qualify as Qualified Small Business Stock (QSBS).
Once the five-year holding period has elapsed, the stock may be sold to any other party. The total amount of profit that may qualify as QSBS tax-free stock profits would be up to $10 million. This must be reported on a tax return and there are provisions in both federal and state (depending upon the individual state) tax returns for excluding this income from taxation. There would be no capital gains tax or ordinary income tax assessed on these profits.
Tax Planning Can Save Millions in Taxes
By far, this is the best procedure for converting existing assets that will be sold at some point in the future, given a five-year sales window, to tax-free profits.
It will also permit during that five-year period that the assets can be invested in say a company that is growing. For example, those profits when transferred into a company may only be valued at $1 million at the time of transfer, but if the company is able to grow the asset value into $10 million over that five-year period, then this whole amount can be sheltered from taxation.
When planned ahead over a five-year period - rather than selling an asset immediately which would subject it to capital gains - tax planning can save someone millions of dollars in taxes.
For further information on this tax saving process contact us.
Ken Lindow, CPA
Ken Lindow, CPA and a former top Inc.500 CFO specializes in tax structuring of real estate investments, ROBS 401k plans for business investing and 401(k) self-directed tax plans for investment planning, as will and business strategy planning for new ventures and fast business growth.