Lot flip- possible to change to corp and get lower tax rate legally?

[Nicole Pier]

We purchased a lot with intent to build. We decided not to build, and instead flip a lot. Lot was purchased in our name. We also own a Property Management C corporation. Is it possible to quit claim this into the C corporation name, and sell under the corporation? This would significantly reduce taxable income. There wouldn’t be any transfer of funds, so I’m not certain if this would be legal. My CPA doesn’t know yet and seeing if others have done this

[Ashish Acharya]

@Nicole Pier
It is legal to transfer a lot from personal ownership to a C corporation via quitclaim deed and then sell it, but the IRS generally treats the transfer as a taxable event under IRC §1001 at fair market value (FMV). This means you may owe capital gains tax on FMV minus your basis, with rates depending on how long you held the property, long-term gains are taxed at 0%, 15%, or 20% (plus 3.8% NIIT), while short-term gains can be taxed at ordinary income rates up to 37%.

IRC §351 may allow tax-free treatment if you receive stock and retain at least 80% ownership, but a quitclaim deed without issuing stock usually fails this test. If no consideration is given, the IRS could treat it as a gift, though in practice it is generally treated as a sale since you control the corporation.

Once transferred, the corporation's basis becomes FMV, and when sold, the gain is taxed at the flat 21% corporate rate under IRC §11 (e.g., $200K sale – $150K basis = $50K gain → $10,500 tax).

If the corporation distributes profits, you face double taxation: first the 21% corporate tax, then shareholder-level tax on dividends at 0%, 15%, or 20% plus 3.8% NIIT. For example, if a $50,000 gain is taxed $10,500 at the corporate level, the remaining $39,500 distributed as dividends could trigger another $9,401 of personal tax (23.8%), bringing the total tax to $19,901 (a 39.8% effective rate). 

By comparison, selling personally at a $100,000 gain may result in $23,800 of tax at 23.8%. If you first transfer then sell, the combined tax could be $22,400 if profits stay in the corporation, but $31,801 if dividends are paid. Retaining profits avoids immediate shareholder tax but may not fit your financial goals.

The IRS may scrutinize such transfers under the step-transaction or substance-over-form doctrines if the move appears solely tax-motivated. State rules also apply—some states impose transfer/documentary taxes (e.g., California charges $1.10 per $1,000 of value), along with corporate or personal state income tax. Timing is critical: the transfer must occur before a sales contract is in place, and proper documentation (corporate resolutions, stock issuance, business purpose) is essential. 

Alternatives include selling personally and contributing proceeds to the corporation, or using an S corporation or LLC to avoid double taxation, though these structures come with eligibility and compliance requirements. You could also explore alternative payout methods (e.g., salary, shareholder loans, or redemptions) instead of dividends, each with its own tax impact.

The best course is to consult a tax attorney or CPA experienced in real estate and corporate taxation.

Provide them with purchase price, FMV, expected sale price, your tax bracket, and the corporation's financial details to determine whether retaining profits in the corporation delivers a true tax benefit versus a personal sale.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.