Discussion:NEW C CORP FOR RENTAL INVESTMENT
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| 3 April 2006 | |
| I started a C Corp for a real estate property. The C Corp was dormant until closing occurred years later. I finally closed in June 2005. My mortgage is in my name and rental income checks were written to me for about 5 mos in 2005 until I had the tenants write them in the company name. Unfortunately, I have comingled my personal and business. How do I rectify? On my personal tax return do I claim the taxes and mortgage interest. Shouldn't that go on the c corp return? I have huge losses, so I didn't pay any c corp taxes. | |
| 3 April 2006 | |
| Real Estate in a C Corp? You are in a horrible tax situation. No benefit for the losses and double taxation of gains. Find a tax professional and get some help, maybe it's not to late to undo this. | |
| 3 April 2006 | |
| You said you had huge losses. If you were reporting this property on your personal return you might get some current benefit. In a C Corp, the loss is just suspended.
The big problem....if your property appreciates in value and you sell it, the corporation has to pay tax on the gain. When you pull the money out, either in the form of a dividend or salary, you have to pay tax on the money received. Double taxation. Never Never Never put appreciating property in a C Corp. How is the property titled? If it is in your name, maybe you can forget about your C Corp and report it personally. If it is in the corps name, maybe you can get it converted to an S Corp with a late election. Not the best entity, but much much much better than what you have. See a professional, get some advice, before it's too late. I swear it will be worth the cost. | |
| 3 April 2006 | |
| Donna, Donna, Donna. What were you thinking? I doubt there's much that anyone could do now...the only thing about this that makes it better than most is that most folks scream about the double tax on all the gains over the years. Here, you just can't use the losses. But really bad planning. Really. | |
| 4 April 2006 | |
| Okay, so in a C Corp the loss is suspended until there is a gain right? Then there will be benefit at that point. Nola999, if my property appreciates, the gain is taxable but the gain is determined after the losses? Yes, the property is titled in my name. I just closed on the property in June 2005. The problem is that the company I had the tenants start sending rent checks in the company name around december 2005 and paid a few bills with the company check book. If I do put the losses on my personal return that would be carried over as well. What 2 back, 20 forward?
Isn't that what people do with a rental property, they start a company and run it through the company. Is an LLC much different. Do people do this because of the liability? | |
| 4 April 2006 | |
| An LLC is the entity of choice for rental real estate. It gives liability protection without double taxation.
I don't know what your personal tax situation is other than this rental. If your income isn't too high, you can offset your W-2 income etc with up to 25,000 in rental loss. Get benefit now instead of waiting. I don't know what property values are doing in your area, but they are skyrocketing here. Your appreciation could easily exceed your losses in a few years. There is no reason for you to pay a high tax on that gain. If the property is in your name, you can undo this. Don't file that C Corp return without understanding what you are doing. | |
| 4 April 2006 | |
| I filed an extension for the C Corp return already. How do I make the C Corp an LLC? And why doesn't the LLC have to have double taxation. When is a C Corp a good thing? | |
Mtmckeecpa (talk|edits) said: | 4 April 2006 |
| Donna,
LLCs can come in many different shapes: SMLLC, partnership LLC, S corp LLC, C Corp LLC. The kind of LLC will dictate the tax ramifications... In my opinion, along with JR1 and Nola, a C corp IS NOT a good thing for rental property. A C corp may be a good thing with a family owned business due to deductible fringe benefits that are otherwise not available to other entites. As Nola states, invest some bucks with a good tax advisor and make sure you understand what you are doing prior to filing... | |
| 4 April 2006 | |
| Since the property and mortgage are titled in your name, I suggest you treat the C Corp merely as an operating shell and kill it as soon as possible. You will probably have to amend you personal return, and you should not try to do this without an accountant. | |
| 4 April 2006 | |
| I have something to add about putting "or not putting" real estate in a C Corp.
Let's say after 20 years in the business of metal plating with a charter that allows for conversion over to real estate investment/rentals, a C Corp decides to sell off the assets of the metal plating part of the business and ends up with losses of $100K. After carrying back the losses to the 2 years prior, the C Corp still has $60K in NOL. Now let's say that C Corp wanted to buy properties, fix them up and sell them for a profit. If they made $60K over the first 2 years in profit, is there any reason they couldn't offset that profit against the NOL. | |
| 5 April 2006 | |
| I was afraid to recommend this to Donna, but it is a way out. Since you can control the C and its demise, by placing a sure winner in the corp, and at the point where your gains offset those old losses, get 3 quick appraisals and effect a sale to the shareholder from the corp. Clears it out, uses the old losses, resets the basis in the RE... | |
| 8 April 2006 | |
| When you carryback losses the 2 years, are you in effect amending those 2 years prior tax returns? Thank you for your respones on my original question. Is there such thing as a shell company Dennis? Kind of like a holding company? What does this mean? | |
| 8 April 2006 | |
| Donna, I think not only I, but a lot of other participants would love to encourage your curiosity. Just not now. I assure you, you will get much better answers to your questions in May. | |
| 8 April 2006 | |
| yes, i am tired of bad/wrong advice from people claiming to have tax knowledge. | |
| 8 April 2006 | |
| Speaking of real estate in a C corporation... If you are receiving substantial rents, is there any way to pass the 60% PHC threshold and fail the 50% rental exclusion? Or is that only possible when you have non-rent PHC income? I am contemplating a situation where the real estate is considered inventory, but rents are received between acquisition and resale. If the above situation isn't possible, then I'd never pay PHC tax: if my resale profits exceed 40% of income PHC status doesn't apply, and if less all my PHC income is excluded as rents. | |
