Home Equity Gift from C-Corp

C-Corp owns a residential house, it’s completely unrelated to their primary business. $300,000 FMV, $250K mortgage. The Corp is not my client, I’m not sure on the rationale for holding it in the corporation. They want to sell the home to their daughter (not a shareholder, but related party) for $250K and treat the other $50K as a gift.

One option is to gift $50K in cash using gift splitting to the daughter/son in law, then have them purchase the property at FMV from the C-Corp. The C-Corp has a small embedded gain on the property if sold, but it isn’t substantial.

My primary question: Is there a more tax efficient way to structure the transaction with the end goal of making a $50,000 gift to their daughter/son in law?

The $50k will be a dividend by the C corp to the shareholder who is related to the daughter. Have the shareholder borrow the $50k from the corp, then gift it to the daughter, who buys the residence from the corp for the $300k FMV.

I'll think about whether there is a more tax efficient way, but the one described will have these results If the C corp. has E&P, the treatment is likely a gain at the C corp. level and a constructive dividend to the shareholders, followed by a taxable gift.

What is the result if the parents gift the daughter shares in the corporation worth $50k, then the corporation redeems them for $50k?

If they are trying to give her the house, they'd redeem using the house $50k equity, which still produces a gain at the corporate level. At the individual level, the constructive ownership rules of 318 would still treat the distribution as a dividend. So, basically no different than the described way.

Why would this be a dividend as opposed to capital gain for the daughter? I am reading Sec. 302, and I'm not quite sure I understand it, but it looks like 302(c)(2) tells us not to apply Sec. 318, and therefore the general rule of 302(a) applies.

If you only read 302(c)(2)(A), you'd have a complete termination of interest and a capital gain.
But if you keep reading to 302(c)(2)(B)(i), you'd change your conclusion.
It might not make a lot of difference.

Yes, I see that you're right. I had no doubt you were, but I wanted to see how to get there. At least it's better than distributing the house to the parents and letting them sell it, right?

Not OP's question, but I can't help wondering how the C corp. handled the house.
Was it occupied?
If so, by daughter?
Was rent charged?
If not, were constructive dividends, gifts, etc. reported? (Rhetorical question).
Was it depreciated?
Were expenses such as interest, taxes, maintenance and insurance, deducted?
Does the corp. have section 531 exposure?
Do the corp. and its owners understand their exposure for open years?
Was corp. ever questioned by IRS about any of the above?