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Author: honeydog Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: LLC tax loss carryforward Date: 9/23/1999 6:00 PM
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5 years spent in commercial land developement with all passthru income retained as capital. Sold all assets in 1998 with big operating loss but either LLC, or I, can buyback a commercial lot much cheaper then market value in future. My only partner is nonresident alien and 90% of 1998 loss allocated me which gives me a large negative capital account figure on my K-1. I will have future large passive, pass thru income from another S corp owning long held, fully depreciated apartments. Questions:
1. If LLC dissolved without adding more capital to buyback commercia developed lot, will I be taxed on my negaive capital gain in yr of dissolution?
2. If answer to 1. is yes, should LLC stay alive,I add capital to buyback lot,then LLC makes large profit when asset later sold. Have paid FICA on earned income from LLC in past. Would the LLC future sale, over 1 yr, of said commercial lot trigger earned income with FICA tax liability, or could it be capital gain?
3. Will have large capital gain on involuntary sale (highway widening)of undeveloped land in a 2nd LLC, with (I understand)3 yrs to reinvest in like-kind property to defer tax. Could purchase of the said 'DEVELOPED LOT' for first LLC be this 'like kind' propert?
4. For depreciated apts, IRS approved C Corp conversion to S Corp starting 1/1/98. I understand that future profit on any apt sale will trigger old C Corp tax liability for 10 yrs after conversion. Is this tru?.
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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19100 of 121114
Subject: Re: LLC tax loss carryforward Date: 9/23/1999 10:03 PM
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Let me begin by saying you definitely need to see a professional.
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1. If LLC dissolved without adding more capital to buyback commercia developed lot, will I be taxed on my negaive capital gain in yr of dissolution?
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It appears from your earlier statement that prior year profits previously taxed may have generated a positive capital account – at least I would think so. This would serve to allow you “basis” against which you could deduct your current year loss.
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2. If answer to 1. is yes, should LLC stay alive,I add capital to buyback lot,then LLC makes large profit when asset later sold. Have paid FICA on earned income from LLC in past. Would the LLC future sale, over 1 yr, of said commercial lot trigger earned income with FICA tax liability, or could it be capital gain?
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I reiterate that perhaps you need to truly determine your basis in your capital account before making further decisions. Your second statement though leads me to believe that perhaps your capital account may have a positive basis since it appears the entity has been profitable in prior periods. The character of the gain treatment on the sale of the commercial lot would IMHO need to be treated consistently with prior sales of similar properties, IOW I would not switch boats in midstream.
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3. Will have large capital gain on involuntary sale (highway widening)of undeveloped land in a 2nd LLC, with (I understand)3 yrs to reinvest in like-kind property to defer tax. Could purchase of the said 'DEVELOPED LOT' for first LLC be this 'like kind' propert?
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Probably need more facts to answer this one too, but for discussion purposes – replacement period is generally two years, three if the condemnation is real estate held for business use, rental use, or investment purposes. I would assume that your property would qualify based on the business use of the property.
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4. For depreciated apts, IRS approved C Corp conversion to S Corp starting 1/1/98. I understand that future profit on any apt sale will trigger old C Corp tax liability for 10 yrs after conversion. Is this tru?.
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This future potential recapture is better known as the “built in gains tax” and will apply for any appreciated property sold by a former C corp after the election to be an S corp. This tax was enacted as a part of the repeal of the “General Utilities Doctrine” in the 1986 TRA. It is intended to keep in place the double taxation of appreciated property held by a C Corp and distributed to its shareholders upon liquidation.


Finally may I say that these are very complicated tax issues that you should discuss with a professional with whom you can share all of the intricate details.

Pete




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