Personal Holding Co Tax

[peanut]

First- even though I have years of experience- I surely do appreciate to check with another preparer that I'm correct. I have a C corporation exclusively rental with some interest income. The gross rent is $ 16000 with rental deductions of 9000 ( depreciation, real estate taxes , mortgage interest ) Interest income is $ 800. There were no dividends paid form the corporation. First I believe that rents are not phc income since they are more than 50% of adjusted gross income. Secondly I believe there is no PHC on the interest income since it does not exceed 10% of ordinary gross income. With the PHC tax isn't it true that a rental c corporation can have some interest income and not pay dividends---it just can't be a large amount.
Appreciate this board----Thanks in advance

[Nashville]

Dividends

I don't believe whether dividends are paid will affect the criteria for PHC. Only the levels of investment income compared to the corporation taken as a whole.

You did mention that this was a C corp. Having investment income nowadays is poor tax planning for a C corp. Most of the investments in the hands of S corps or individuals can be eligible for favored tax rate status of 15%. C corp earnings are taxed at the same rate regardless of the character of income.

Your client might be well-advised to restructure its holdings. Yes, I'm aware that interest is not eligible for favored rates, but it sounds like the interest may be coming from installment sales of real estate, and if that is the case then the C corp is reporting capital gains on the sale and being taxed at ordinary rates.

[ChEAr$]

Phc

now I may be a little rusty on this, but as I remember last time I had it, was the first year
dividends were eligible for capital gains treatment.

And even though it was after 12/31 for the c corp, the form had a line on it for a deduction for
dividends paid within 2 and 1/2 months after 12/31.

If this is (still) so, you've got time.