Optimizing sale of building and business to daughter

[Locke]

Client has:

Multi-unit commerical rental building held in a partnership (husband and wife), book value $227k with $55k acc. depreciation for basis of $172k

Restaurant in the building held in an S-corp (husband), book value $44k with 15k acc. dep. for basis of $29k.

Taxable income outside of this transaction is less than standard deduction.

Client wants to sell all to daughter for $425k.

1.  Related party transactions interact here.  What are the effects on transferred basis, recaptured depreciation, and amounts of gains taxed at ordinary vs. capital rates.

2.  If building was transferred via quit-claim (or warranty deed) for $1.00 and the business is allocated the $425k sale, what are the impacts on the above.

3.  Is there an alternative sale format that best minimizes the resultant tax impact?

Thanks to this community, always been a fantastic resource with great minds

[sjrcpa]

This way too big a project for April 5.

First question - how does $425K compare to the FMV of the real estate and restaurant business?

[Locke]

Agreed on the timing!

No appraisals done, but I'd place the price close to FMV or slightly under 

[TaxGuyBill]

In my opinion, that reeks of a step transaction/economic substance transaction.

In a nutshell, you aren't allowed to claim one part is a gift and sell one part at a crazy inflated price just to try to save taxes.

If they are agreeable to it, you may consider how doing an Installment Sale would affect things.

[qbteachmt]

"and the business is allocated the $425k sale"

Why would you even do this? I would want the real estate basis to be the high spot, if real money is changing hands at all. And they want the S Corp sale to hold the income, rather than RE gain?

This is very confusing to me.