Rental by C Corp

[erchess]

Potential Client called today. She is getting her information together but wanted to know if I can do C Corp and get an idea of what I would charge. The C Corp builds houses and then attempts to sell them profitably but doe to the meltdown in the housing market she has not actually built or sold a house in the last four years. The C Corp does own one "slum property" (her term) which was rented all year for $600 a month and a piece of unimproved land on which there are taxes.

I remember reading on this board that you do not want to be in a position of selling real estate that you held through a corp. Can someone refresh my memory on why this is and give me pointers on how and when to transfer it out of the corp?

[snowshine]

That may have been me at chess last spring? I think we were talking partnerships at the time, though Call me 779-0319

[erchess]

Nope

I have called you and left a message but I definitely and clearly remember reading on the board that you do not want to have a corporation owning real estate. It was specifically argued I believe that let's say a tax pro or a plumber owns a building that is entirely used in his business the or an owner should own the building and the business should pay rent. The point also applied to owning a rental house through a corp and in both cases the idea was that there are unpleasant consequences at the time of sale of real estate owned by a corp.

[Black Bart]

Don't remember when,

I have called you and left a message but I definitely and clearly remember reading on the board that you do not want to have a corporation owning real estate. It was specifically argued I believe that let's say a tax pro or a plumber owns a building that is entirely used in his business the or an owner should own the building and the business should pay rent. The point also applied to owning a rental house through a corp and in both cases the idea was that there are unpleasant consequences at the time of sale of real estate owned by a corp.

but I believe it was Bees Knees who told us that here on the board at one time. If so, maybe he'll see your query and clue you in.

[erchess]

It would be interesting

if Bees would chime in because Snowshine doesn't think there is a problem with a corp owning a rental property or the building out of which it operates and eventually selling either.

[S T]

Prior discussions

Here are some of the threads

http://www.thetaxbook.com/forums/showthread.php?t=9541&highlight=real+estate+corp

http://www.thetaxbook.com/forums/showthread.php?t=12474&highlight=real+estate+corporation

http://www.thetaxbook.com/forums/showthread.php?t=3285&highlight=real+estate+corporation

there are more - use the Search box and something like real estate in corp

Sandy

[Bees Knees]

The issue in this thread is different than the threads that Sandy linked. In one of the posts that Sandy linked, I said it could be malpractice to let a client contribute real estate to a C corporation, because if the client liquidates the corporation 5 years later but hangs on to the real estate, he/she has to pay tax on the appreciation built up inside the C corporation even though the client never sold the real estate.

For example: Client owns a retail shop as a sole proprietor. You encourage the client to form a C corporation, and contribute the sole proprietor assets to the corporation, including the real estate. Client 5 years later decides it is too much of a hassle to operate as a C corporation and wants to go back to being a sole proprietor. Nothing is sold. It is simply a change of business entity. Going from the C corp back to a sole proprietor means the C corp assets are liquidated at FMV. Thus, the client has to pay tax on the appreciation while the real estate was owned by the C corporation, even though nothing was actually sold.

In the situation described above in the original post of this thread, it is different, because it is the C corporation that is building the house and then sells at a profit. There is no desire on the part of the shareholder to keep the real estate and liquidate the C corporation. The C corporation is in the business of buying and selling real estate. If it is the clients desire to sell the real estate at a profit, there is nothing wrong with it being sold inside the C corporation (other than obvious double tax issues that apply to all C corporation profits).

[erchess]

Thank you Bees

That is a load off my mind.