New S-Corp - Purchase of Building

[pmedders]

Have client that purchased a building in January of 2005. Client did not want to claim as an asset of corporation; however paid all expenses for warehouse from corporate checking account. Is there a way, now that we are in 2006, to correct this situation? If all expenses were paid from corporate account, would that not make the warehouse an asset of corporation? Also, in previous threads, I noted the recommendation to set up the building as a LLC partnership that rented the building to the S-Corp - is there a way at this point to do that??

Thanks for your input!!

[Bucky]

Is the deed in the corps name or the individual? If it is in the individuals name you could reclassify the expenses paid as rent to individual. Why do they wait until now to tell us all the wonderful things they do throughout the year. Still gotta love them.

[pmedders]

S-Corp - Purchase of New Building

With checks made out to loan company and insurance company, rather than to shareholder, won't the IRS deem warehouse an asset of corporation? If audited, how would IRS look at those expenses that we stated were rent payments to shareholder, but not paid to shareholder?

[Matt Sova]

Rent

Have the corp take the insurance, taxes and maintenance costs paid as insurance, tax and maintenance expense - similar to a triple net lease. The loan payments take as rent expense at the corporate level. On the personal level these "rent" payments become rent income to the individual and the individual then writes off the mortgage interest and depreciation against the income.

Matt

[pmedders]

S-Corp - Purchase of New Building

Just wanting to confirm that there would not be a problem if audited if loan payment to mortgage company was paid from the corporate account to the mortgage company instead of corporation issuing a check to shareholder for rent expense. I have worked with just a few S-Corps and want to make sure I handle correctly.

Thanks!!

[Bees Knees]

Just wanting to confirm that there would not be a problem if audited if loan payment to mortgage company was paid from the corporate account to the mortgage company instead of corporation issuing a check to shareholder for rent expense. I have worked with just a few S-Corps and want to make sure I handle correctly.

Thanks!!

I don't think anyone is saying there won't be a problem. You might have to fight with IRS on it. But I don't think you want that builging in the corporation. You should never let appreciated property like real estate be inside a corporation. That could get you sued for malpractice.

[OldJack]

corp real estate

You should never let appreciated property like real estate be inside a corporation.

I agree. Lets face it, S-corp owners operate very loose thinking they "are" the corporation and they don't exactly check the rules or tax pros before doing transactions that can get them in trouble. Often overlooked is the risk that the S-corp status as a S-corp may be lost/terminated because several years ago the owner had a "prohibited" transaction. Sure there is possibility of the IRS accepting your request for reinstatement, but no guarantee.

But, If the real estate is in the corporation and the S-corp status terminates, the asset suddenly becomes an asset of a C-corp with the old double tax on sale/distribution or even a built-in gain (possible double tax) for re-election as a S-corp. Its just plain dumb to put real estate in S-corp or C-corp as there is no real advantage other than maybe convenience.

[pmedders]

S-Corp - Purchase of New Building

Which would be more advantageous - setting up the building as a LLC and taxed as a sole proprietor or as a LLC and taxed as a partnership (putting wife as partner of LLC for buidling)? And why??