For purposes of calculating the 2% of basis or $10000 threshold for the safe harbor election, the regs I have found for lessees say: “For lessees, the unadjusted basis of the building is equal to the total amount of undiscounted rent paid or expected to be paid over the entire lease term, including expected renewals.”
But what do you do when the shareholder of a corp. is also the owner of the building, and rents it to his corp triple net, corp pays all M&R, and expects to keep renting it indefinitely?
So for instance a client owns a building personally and rents it to his corp for $2000 a month and he “expects” to keep renting it to his corp for as long as he is in business, 20 years or more. 20 yrs at $2000 p/mo would be a basis of $480,000 to the corp?? Doesn’t seem right. That is much higher than his actual unadjusted basis as the owner.
Since it is common ownership should we use owner/lessor’s actual unadjusted basis? Or is the safe harbor even available for the lessee under these arrangements?
Many of my clients do not have formal leases, or if they did have at one time the original lease term may have expired long ago and is month to month now.
Kerrie
But what do you do when the shareholder of a corp. is also the owner of the building, and rents it to his corp triple net, corp pays all M&R, and expects to keep renting it indefinitely?
So for instance a client owns a building personally and rents it to his corp for $2000 a month and he “expects” to keep renting it to his corp for as long as he is in business, 20 years or more. 20 yrs at $2000 p/mo would be a basis of $480,000 to the corp?? Doesn’t seem right. That is much higher than his actual unadjusted basis as the owner.
Since it is common ownership should we use owner/lessor’s actual unadjusted basis? Or is the safe harbor even available for the lessee under these arrangements?
Many of my clients do not have formal leases, or if they did have at one time the original lease term may have expired long ago and is month to month now.
Kerrie