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Subject:  Avoiding gift tax via a Corporation Date:  6/28/2006  2:25 PM
Author:  elZaphod Number:  87588 of 127616

My parents recently inherited an estate and told my sister and myself (quite generously) that they would like to pass a considerable amount of it on to us once the home is sold. I have been planning on starting a real estate investment company for the past year and figured this would be a perfect nest egg to start it. My question is how to avoid paying income tax on that gifted money if I intend to directly invest it in my first real estate purchase.

I know the IRS allows a gift of $10,000 (possibly higher now?) to anyone tax-free each year. If the amount to be gifted was for example $50,000 it would take 5 years to receive the money tax-free. However I figured if I started a corporation, my parents could invest the entire $50K into the corporation. Each year they could then gift me $10K of their stake in corporation (or sell out $10K and just give me the cash). I imagine this is legal, but wasn't sure what type of arrangement this would be called. I'm just starting to research corporations, so I'm not exactly sure what type would be best for this situation. I've had friends outside my family express interest in becoming investors, and didn't know if that would have any bearing on my choice.
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