Have a client who owns 100% of C-Corp which elected to be taxed as S-Corp. My client wants his C-Corp/S-Corp to finance the building of a house for which his family will use for personal residence. Client plans on paying personal rent to his C-Corp/S-Corp. Your comments please.
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First off, there is no such entity as a c-corp/s-corp. If corporation is the legal status and the election was made to be taxed as an S corp, the terminology is S-corp.
Do they want the corp or finance (loan to shareholder) or own it (SH pays rent)? Two totally separate things. Which do they want to do and why do they want to do it? -
That seems really bizarre. I would THINK it would be the other way around; the banker would prefer to lend to an individual rather than a corporation.
If the corporation owns the building, it will not qualify for the $250,000 home sale exclusion when it is sold. If the property is ever transferred to anybody else (such as the shareholder), it is reported as a 'sale' by the corporation at Fair Market Value (any gain would be taxable).Comment
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I agree w/ Bill. In addition if the corp buys the house interest rate will likely be higher along w/ higher insurance. Depending on the state the RE tax may be higher as well.
The SH pays rent to the corp, and then also pays tax on net rental income through pass through on K-1.Comment
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What if there is a loss? Is that passed through as well? Whole thing sounds like something the IRS would scrutinize on both ends.The SH pays rent to the corp, and then also pays tax on net rental income through pass through on K-1.Comment
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