Under Internal Revenue Code Section 1042, eligible shareholders can defer capital gains tax on eligible stock sold to an ESOP if the proceeds of the sale are reinvested in qualified replacement property. Learn more in this video.
Transcript
The Internal Revenue Code requires a selling shareholder to reinvest in qualified replacement property in order to get the income tax deferral. Qualified replacement property is defined as stocks or bonds of domestic operating corporations. This could be large-cap stock traded on the market. It could be stock of a privately held corporation or it could even be stock of a start-up corporation.
On the other hand, another strategy allows selling shareholders to invest in what we call floating rate notes which are bonds that are issued by large corporations with interest rates that float and have some call and put protections on them, but are used to allow the investor to leverage that portfolio and invest in other assets such as real estate.
