Questions to the tax desk.

Q. If an entity wants to be classified as an S Corporation, do they have to file both a Form 8832, Entity Classification Election, and a Form 2553, Election by a Small Business Corporation?

A. Section 301.7701-3 permits entities who wish to be classified as an S Corporation to file only the Form 2553, Election by a Small Business Corporation. The requirement to also file the Form 8832, Entity Classification Election, has been eliminated. Section 301.7701-3 provides that an election to be classified as S Corporation is also an election to be classified as an association.

Q. How long must a replacement property acquired in a like-kind exchange be held as an investment, rental, or business property before it can be converted to personal use, e.g., to a personal residence?

A. There is no definitive guidance as to how long a replacement property acquired in a like-kind exchange must be held as an investment, rental, or business property before it can be converted to personal use, e.g., to a personal residence. However, most tax experts recommend the property be held as investment, rental, or business property for at least one year.

Q. When replacement property acquired in a like-kind exchange is converted to personal use (e.g., to a personal residence), how long must the property be lived in and owned before the property becomes eligible for the $250,000/$500,000 exclusion under Section 121?

A. Replacement property acquired in a like-kind exchange must be used as a personal residence for at least two years but must be owned for at least five years before it becomes eligible for the $250,000/$500,000 exclusion under Section 121.

--Patrick Duffy

Tax Manager

National Society of Accountants

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