Gretta has moved on from her CPA career and now runs her own company, having acquired it from a former client who was retiring. It is engaged in light manufacturing, assembly and distribution of small parts to the automotive industry. She holds a majority of the corporate stock in GD Ventures, Inc., with her business partner, Dieter, holding the remaining shares. They formed a limited liability company as equal partners to purchase and manage the land and building that the company operates in. The LLC leases the real estate to GD Ventures.

Gretta and Dieter each contributed $50,000 to the LLC in January 2015. They obtained a mortgage loan from a local bank for $400,000, and purchased the land and building from the prior business owner for $500,000. The LLC has recognized the allowable straight line depreciation on a 39 year life since 2015.

This year they have been approached by a group of real estate investors that want to buy the real estate and then lease it to GD Ventures. They have offered $800,000 for the real property.

8. Assume the investors also want to buy the business for $2 million in addition to the real estate. They propose to buy the stock of GD Ventures, Inc. If GD is an S corporation, can Gretta and Dieter qualify the sale for a tax break under Section 1202?

9. Regardless of your answer in No. 8, if the stock does qualify as Section 1202 stock on that issue, will Gretta and Dieter have met the other Section 1202 requirements?

10. Regardless of your answers in 8 and 9, If they did meet the requirements of Section 1202 stock and had invested $300,000 in the stock to get the company started, what will be their tax on the sale of the corporation?