Legal Question in Tax Law in California
Protect Capital Gains
My wife and I own property, which we have in, a family trusts. We have owned the properties for 20 plus years, which means they have a very low tax basis. I would like to start a Construction Company with my two adult children and build custom homes. The Construction Company would be set up as a Corporation we would ideally each have a 1/3rd interest in the corporation (myself and two children).
The properties would continue to be held by my wife and I as personal property in the family trust and the Construction Company would take down a lot at a time or a group of lots and build a custom home(s) and sell or a client would contract to have a custom home built. The lot would be purchased from the family trust and the Construction Company would build the home (two separate entities).
My concern is weather my wife and I can maintain our long term capital gains on the properties if I was to have a minority interest in the Construction Company and also would the same answer hold true if I held a majority interest in the Construction Company for a period of time.
The properties have already been developed and are all legal lots.
Thank You
1 Answer from Attorneys
Re: Protect Capital Gains
This is a very detailed question. If you (your trust) sells the property to a third person, you should be OK. There are some strange rules regarding related companies, but they usually come into play when transfers of property go between the two related companies (or individuals).
You may also want to consider other options (1031) in order to delay capital gains. Much more detail needed.
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