UPDATE | PATH Act Extends Built In Gains to Five Years


A few of my clients have asked, so here is an update to my article post on Built In Gains Recognition Period (read the original here). The President signed into law the Tax Increase Prevention Act of 2014 on December 19, 2014. One provision of this legislation was to retroactively reduce the Built-In-Gains (BIG) tax recognition period from 10 years from the date of Subchapter S election to five years from such S election date. So, for those taxpayers out there who had converted from C Corporation status to S Corporation status during the period January 1, 2005 to December 30, 2009, you had a window in 2014 to have sold your business and avoid this BIG tax on the sale.

Most business people would not transact a business sale on the “hope” that tax laws would be retroactively changed. But, here we are again in 2015 in a sort of “limbo” as to what tax will apply should you sell your business after a fairly recent conversion of your corporation from C to S status.

As of January 1, 2015, we are again back to the 10-year wait from the S conversion date to avoid the BIG tax. Congress and the President need to fix this issue (among many other similar retroactive tax law changes – Section 179, bonus depreciation…) so that business decisions can be made without having to speculate on the tax effects of the transaction.

We are staying on top of it. Should you have questions or a big decision coming up, consult with your CPA or give us a call.

 

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