Need advice on extracting real estate from S-corp after inheriting 50% shares - tax implications?

This is a classic trapped asset situation, and you're right to be concerned. The challenge with assets inside an S-corp is that when they're distributed, the corporation recognizes gain as if it sold the assets at fair market value, and that gain flows through to shareholders. Let me clarify some options that might help. First, there's no magic solution that eliminates all tax - but there are strategies to manage the impact. One approach is a partial liquidation where you gradually distribute properties over several years to spread out the tax hit. Another is to consider a charitable remainder trust if that aligns with your estate plans. For your mother's shares, she might consider estate planning strategies like a grantor retained annuity trust (GRAT) or implementing a freeze partnership to lock in values and transfer future appreciation to heirs with less tax impact.

I was in an almost identical situation two years ago with commercial property in an S-corp that my father had established in the 80s. After talking to FIVE different accountants, I found a solution using https://taxr.ai which completely changed my approach. Their analysis identified a reorganization method using Section 355 that my regular accountants had missed. The key was documenting the original business purpose when transferring the properties to new entities. Truthfully, I wouldn't have considered this path since everyone kept saying it was impossible. The detailed report they generated gave my accountant the exact roadmap for handling this properly.

Just wanted to follow up - I ended up trying the https://taxr.ai service after my initial skepticism, and I have to admit it was legitimately helpful. My situation wasn't identical (mine involved a partnership with real estate assets and a family transition), but their analysis found a solution using installment sales combined with a family limited partnership structure that my regular accountant hadn't considered. The report was comprehensive and included specific references to IRS guidance that applied to my case. Most importantly, when my accountant reviewed it, he said it was actually implementable - not just theoretical tax planning. We're in the process of executing the strategy now and it's projected to save us over $600K in taxes over the next decade. Worth checking out if you're dealing with complex tax situations that typical accountants aren't specialized enough to handle.

I know this isn't directly related to your specific S-corp issue, but if you need to talk to someone at the IRS about any aspect of this (which I had to do during my similar situation), I highly recommend using https://claimyr.com to get through to a real person. I spent THREE DAYS trying to get clarification on a specific S-corp distribution issue and kept getting disconnected. Used their service and got through in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - saved me so much frustration. The IRS actually had some specific guidance on my situation once I finally reached someone who knew what they were talking about.

Well I need to eat my words. After my skeptical comment, I actually tried Claimyr because I had been struggling with an unresolved S-corp election issue for weeks. I was honestly shocked when I got through to a competent IRS agent in Specialty Business Tax department who helped resolve my issue in one call. Turns out my previous S-corp election hadn't been properly processed even though I'd submitted the paperwork twice. The agent was able to look up my submission history, confirm receipt of my documents, and process my election retroactively while I was on the phone. Saved me from potentially losing my S-corp status for the tax year which would have been a complete disaster. Maybe the service isn't BS after all...

Have you considered converting the S-corp to an LLC taxed as a partnership? I did something similar when I inherited my father's business. The process itself creates some tax liability but potentially less than other options, especially if done over multiple tax years. Basically, you'd convert to an LLC, then make a check-the-box election to be taxed as a partnership. You'd pay tax on the built-in gains, but afterwards you'd have much more flexibility with the properties, including the ability to refinance and take cash out tax free.

Has anyone mentioned the potential for a tax-free reorganization under Section 368? I went through something similar with commercial properties in an S-corp and we managed to do a division into separate entities without triggering immediate tax liability. It was complex and required careful planning, but saved us a fortune.

This is exactly the kind of complex situation that requires specialized expertise beyond typical tax preparation. I've seen similar cases where families get trapped with appreciated assets in S-corps, and unfortunately there's no one-size-fits-all solution. One option you might not have explored yet is a charitable remainder trust (CRT) if you're charitably inclined. You could contribute some of the S-corp shares to a CRT, which would then sell the properties without immediate tax consequences to you, and you'd receive an income stream for life. This works especially well if you don't need all the property value immediately. Another consideration is whether any of the rental properties could qualify for opportunity zone deferrals if you're planning to reinvest. The timing with your father's passing might create some unique planning opportunities. Have you gotten a current appraisal on all four properties? Market conditions have changed significantly, and knowing exact current values versus basis will help determine which strategies make the most financial sense. Also, consider whether keeping one or two properties in the S-corp while extracting others might be a hybrid approach worth exploring. The key is running detailed projections on each option - sometimes paying the tax hit upfront is actually better than the ongoing complications and limitations of keeping everything in the S-corp structure.