A section 85 rollover is a tax-deferred transfer of property from a taxpayer to a corporation. It is often recommended for holding companies because it allows them to acquire assets from their shareholders without triggering an immediate tax liability.
Here are some of the reasons why a section 85 rollover may be recommended for holding companies:
- Tax deferral: By using a section 85 rollover, the shareholder can transfer assets to the holding company without triggering an immediate tax liability. Instead, the shareholder will be deemed to have received shares of the holding company with a tax cost equal to the fair market value of the transferred assets. This means that the tax liability is deferred until the shareholder disposes of the shares of the holding company.
- Better corporate structure: Holding companies can be used to hold investments or operating companies, which can provide several benefits, such as liability protection, centralized management, and tax planning. By using a section 85 rollover to transfer assets to a holding company, the shareholder can create a better corporate structure for their business.
- Estate planning: A section 85 rollover can be used as part of an estate plan to transfer assets to the holding company and reduce the shareholder’s exposure to estate taxes. By transferring assets to the holding company, the shareholder can also ensure that the assets are managed and distributed according to their wishes.
- Flexibility: A section 85 rollover can be used to transfer a variety of assets to a holding company, including shares of other corporations, real estate, and intellectual property. This provides the shareholder with flexibility in structuring their business and transferring assets to the holding company.
Overall, a section 85 rollover can be a useful tool for holding companies to acquire assets from their shareholders in a tax-efficient manner. However, it is important to consult with a qualified tax lawyer or accountant to determine whether a section 85 rollover is appropriate for your specific situation. If you have any questions, please contact us at 1-877-892-7778 or firstname.lastname@example.org.