Does C corp pay tax on sale of rental property?
We followed the steps to create C corp and move retirement funds to new 401k. The 401k purchased the C corp stock. The C corp purchased rental property. Now 13 years later, the C corp is selling the property. Does the C corp pay tax on gain or how is the net returned to 401k without taxable event. There was no sale of stock at property closing. There are no other assets other than cash after the sale. Thank you for your help
Thanks for the question. It sounds like your situation is relatively technical, and we avoid giving specific tax advice online. We would recommend that you speak with a licensed tax professional to get a better understanding of the tax implications for this transactions.
However, based on the situation that you’ve outlined, our understanding is that the C-Corp would need to pay taxes on any gains made on the sale of this rental property. C-Corps aren’t given the same preferential tax treatment for capital gains as individuals, so in this event, it seems like the C-Corp would pay taxes on the gains at ordinary income tax rates.
It sounds like, in this case at least, you may have been better served holding this real estate directly in a 401(k) or IRA – assuming that you own the entire property, own a tenant-in-common interest outright, or could qualify it for nonrecourse financing.
For more information on how to own properties in a self-directed IRA or another retirement account, be sure to check out our ultimate guide to Self-Directed IRAs for Real Estate Investing (https://fitsmallbusiness.com/self-directed-ira-for-real-estate-investing/).
Again, you should probably seek counsel from a licensed tax professional to better understand the tax implications of this transaction.
Best of luck,