S-Corp buys property in Florida

[Barb]

I have a client that is seriously thinking about starting to invest in some real estate in Florida that they could rent as vacation homes or lease until we can sell their current home and move there. Is this possible to get a loan under the S-Corp for this? The S-Corp is not in the business of rental real estate, they do Website building.

What about later, can the S-Corp sell it to him or rent it to him?

Would he have to set up a complete new business to do this?

[JoshinNC]

Never, ever, ever

have a corp, S or C, own real estate.

Now that we cleared that up, I would set up an LLC to own the property, which could then lease it to tenants. When your client wants to move to FL the LLC transfers the property back to your client and your client lives in it, paying the mortgage (if there is one).

[Barb]

RE: Corp owning rental prop.

Thanks, I thought I hear that somewhere.

Would the LLC actually sell the property to the client, not just transfer it? It would be a business asset with depreciation taken.

[MLINDER42]

Llc Owns Property

LLC invisible for tax purposes so it can transfer property back to owner.It does not have to sell it.

[Barb]

LLC Transfer prop

No Sale ? So all the client has to do and draw up a new deed in his name? What about the depreciation that the LLC takes on the property during the rental business.

[Burke]

See the new rules for sale of residence. Property becomes primary residence, and when sold -- if it meets the rules -- no taxable gain on first $500,000 (MFJ) of profit -- with exception of period of time when it was rental property. There would be taxable gain on that portion.

[Barb]

I just want to make sure I have this straight.

I tell my client to open an LLC for buying this rental property, naming the LLC as owner and use this LLC as a rental business. Then after a few years when he moves to Fla, he will have a new deed drawn up to name him as the owner. (Not a sale nor taxable transaction) He lives there for many years, sells it for a profit or not more then $500,000, excludes all the profit except for the amount of depreciation that was taken during the time the LLC had it as rental property. Do I have it correct?

One more twist, he also wants to buy property in another state. Is it best to open new LLC for each new property that he may acquire?

[DonPriebe]

I tell my client to open an LLC for buying this rental property, naming the LLC as owner and use this LLC as a rental business. Then after a few years when he moves to Fla, he will have a new deed drawn up to name him as the owner. (Not a sale nor taxable transaction) He lives there for many years, sells it for a profit or not more then $500,000, excludes all the profit except for the amount of depreciation that was taken during the time the LLC had it as rental property. Do I have it correct?

It seems to me that if the LLC is a non-recognized entity, then he has owned the property since it was originally purchased. You seem to think so too, since you mention that upon the eventual sale he will not be able to exclude the depreciation that was taken. If we are both correct, then he will also not be able to exclude all of the remaining gain due to the NEW Section 121 rules that take effect on January 1 2009.

[JoshinNC]

not exactly

I just want to make sure I have this straight.

I tell my client to open an LLC for buying this rental property, naming the LLC as owner and use this LLC as a rental business. Then after a few years when he moves to Fla, he will have a new deed drawn up to name him as the owner. (Not a sale nor taxable transaction) He lives there for many years, sells it for a profit or not more then $500,000, excludes all the profit except for the amount of depreciation that was taken during the time the LLC had it as rental property. Do I have it correct?

One more twist, he also wants to buy property in another state. Is it best to open new LLC for each new property that he may acquire?

the new 121 rules will require the owner to prorate the business and non business years to determine the taxable/nontaxable portion. other than that you've got it.

I recommend a seperate LLC for each property.

[Barb]

I forgot about that New law. He will not be exclude the allocated part for the time it was a rental, so depending on how long he rents it, and how long he lives in it as personal that will determine the amount of excludable gains. Thanks for pointing that out.