Discussion:Business renting facility owned by related LLC
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Discussion Forum Index --> Advanced Tax Questions --> Business renting facility owned by related LLC
Discussion Forum Index --> Tax Questions --> Business renting facility owned by related LLC
DR BRISKET (talk|edits) said: | 29 October 2009 |
| I have a business client (C-corp with 2 shareholders) which leases its premises from an LLC which is owned by the same two shareholders. I think this is a fairly common practice. The LLC was formed when the building was purchased. Of course, the LLC uses the lease income to service the building mortgage.
The question has been asked if this building could be transferred to the C-corp without creating a taxable event. The shareholders, along with an outside consultant, feel this would strengthen the C-Corp balance sheet, although I am not convinced this would be the case. It would seem to me the building would actually have to be sold to the C-Corp at current market value which would create both capital gain and ordinary income (for the depreciation recapture)to the LLC, and ultamately the LLC members. Any imput from the Tax Forum members would be greatly appreciated. Thank you. | |
| 29 October 2009 | |
| Why not contribute the ownership of the LLC to the C-corp and dissolve the LLC? Wouldn't ยง351 apply to the contribution? Alternatively, if the balance sheet considerations are related to bonding or financing, take a look at Variable Interest Entity issues for GAAP financial statements. You may have to (be able to) report the LLC as a part of the financial statement and, thus, strengthen the balance sheet without any tax issues. Hope that helps. | |
DR BRISKET (talk|edits) said: | 29 October 2009 |
| Captcook: thanks for the info. I didn't even think about the Section 351 application. That sounds like the best option. Thanks again for your help. | |
| 29 October 2009 | |
| Don't we need the obligatory links here, to why you should never put real estate in a corporation? If you need more info, a search on RE in a corp provides more discussion - surprisingly, there aren't too many discussions that are duplicated between those two subset searches (I find that interesting - go figure!).
Of course, you could be assuming that the building is unlikely to ever appreciate from today's price, and these days, who could blame you? | |
Laketahoecpa (talk|edits) said: | 29 October 2009 |
| Make sure adjusted basis of building is greater than mortgage. If liabilities exceed basis then you'll have taxable gain. | |
| 30 October 2009 | |
| Those were the two things I was going to pipe up about when I read the OP. Never put real estate in a C or an S corporation. And be careful of attempting a 351 if basis is less than the mortgage. | |
RoyDaleOne (talk|edits) said: | 30 October 2009 |
| A combined financial statement of the entities controlled by the same shareholders may be "required" or can be prepared according to GAAP (generally accepted accounting principles), to answer the consultant.
Never put real estate in an S Corporation and increase your ownership costs by sales tax of at less 7 to 9 percent (in the State of Florida), insurance, real property taxes, not to mention your accounting bills, paasive loss problems (this comment does not necessarily apply to property rened to others). | |
