[bigbone]

We purchased a commercial property in FL in 2003 for $820,000 + $52,000 in realty commissions. We incorporated "S" at that time. We have the property on the market now for $2,200,000. There is an $800,000 lien against the property at this time. 90% of all profits have gone back into the property for improvements. My wife and I have only paid ourselves $1,000.00 each quarterly for 2 years out of the 6 that we have owned the property and put $75,000 of our own money into it from the cash sale of another business we owned. The buyer does not want to buy the corporation because they will lose depreciation, so my accountant ,who only sees black and white, never a grey area, says I must pay 15% tax on $1,600,000 at closing. No if's ands or buts. The payment arrangement is $629,000 down with $234,000 for taxes, $130,000 for closing and commissions, $4,200 interest only monthly payments for 10 years and the balance due at that time. She says we will also have to pay taxes on our interest payments we receive.
I understand and agree that it's best to pay the capital gains taxes now as they will surely increase over 10 years but is there any way to keep from paying so much in taxes? With all of the legal loopholes built into corporation laws there is surely some way to keep from giving all of that to the government.
It cost me $150.00 to incorporate and will cost $234,000 to desolve it. Is this the way government rewards us for our hard work?

[AtlantaTaxExpert]

Sounds to me like you do NOT like the competent, professional tax advice you are paying for. Personally, I see nothing wrong with the advice, but I do NOT specialize in corporate tax work, so I may be missing something.

The taxes you are paying are NOT corporate taxes, but rather the capital gains on the appreciated value for the property in question.

You may want to contact an enrolled agent or a CPA who specializes in corporate taxation and run your scenario past him or her. Expect to pay a fee in the $300-$1,000 range for the research involved.

He/she MAY be able to provide an alternative course of action to reduce your tax bill, but, off-hand, I doubt it.

[ScottGem]

Since this is a fairly complex situation, I would only suggest that you hire a tax attorney, who MAY be able to "creatively" structure the sale. However, there is a likelihood that the cost of such an attorney would exceed the savings you will garner.

[bigbone]

Sounds to me like you do NOT like the competent, professional tax advice you are paying for. Personally, I see nothing wrong with the advice, but I do NOT specialize in corporate tax work, so I may be missing something.

The taxes you are paying are NOT corporate taxes, but rather the capital gains on the appreciated value for the property in question.

You may want to contact an enrolled agent or a CPA who specializes in corporate taxation and run your scenario past him or her. Expect to pay a fee in the $300-$1,000 range for the research involved.

He/she MAY be able to provide an alternative course of action to reduce your tax bill, but, off-hand, I doubt it.

Do I have to pay all of the taxes even though I won't receive all of the money for 10 years and, if I have to take the property back, does the government credit the taxes back to me or is this just the price to dissolve the corporation?

[ArcSine]

If this sale qualifies for installment treatment, then you'd pay the tax bite as you received the cash. The way you've described your deal structure, it sounds like you're receiving a portion of the price at closing, and the remainder 10 years out, with just interest payments during the interim.

But with your statement, "I understand and agree that it's best to pay the capital gains taxes now as they will surely increase over 10 years..." it sounded like you were going to elect to forgo the installment method (which is an option) and pay all the tax up front.

While it's true that opting out of the installment method makes sense, from a time-value-of-money perspective, if capital gains tax rates rise by a sufficient amount, it's really anybody's guess as to what CG rates will be 10 years down the road. Get your accountant to run some calcs on the comparison, but I think you'll come down on the side of going with the installment method. What the analysis will have to show you is how much CG rates will have to increase 10 years hence in order for the no-installment strategy to make sense, but whether the rates will hit that threshold is just readin' tea leaves.

As to the accuracy of the accountant's conclusion on your tax hit, these types of deals (sale of partially depreciated, leveraged property) are pretty straightforward. It should be pretty easy for another tax person to give you a quick second opinion on the numbers. You might want to have a brief pow-wow with another CPA--take your info with you, and they can tell you pretty quickly if your accountant got it right or not.

Best of luck!