Discussion:S Corp--Is farm share rent passive?
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Discussion Forum Index --> Advanced Tax Questions --> S Corp--Is farm share rent passive?
Discussion Forum Index --> Tax Questions --> S Corp--Is farm share rent passive?
| 2 February 2008 | |
| We have a C Corp that has been converted to an S Corp. The corporation has E&P from its C Corp years. The corporation owns farm land that is leased on a crop sharing basis (the rent is based on a certain percent of gross receipts received by the tenant). The corporation is at risk of not receiving any income if there is a crop failure. The corporate expenses include mostly property taxes and major repairs and it also does orchard development. Will this type of rent be considered nonpassive or will it be passive and subject to excess passive income rules? | |
RoyDaleOne (talk|edits) said: | 3 February 2008 |
| Depends on the amount partication in farming operations by the corporation. | |
| 5 February 2008 | |
| There are special rules for some retired and disabled farmers that might apply to your benefit. See Section. 469(h)(3). | |
| 6 February 2008 | |
| I'm a tax pro AND own a farm in an Scorp with C corp retained earnings AND we share crop it. Our attorney and tax guys back at the farm had no problem with it as long as we had a phone meeting now and then discussing actual management. No cash rents though.
If there is enough cash in the corp, distribute the retained earnings on the balance sheet as a true 1099-Div. This will increase basis, probably be a lower tax rate on the dividend, AND get rid of any potential excess passive income problem (it only applies if there are retained earnings on the balance sheet. You can also do a deemed dividend if the shareholders are willing to pay the tax on a dividend. In this case the corp distributes no cash but the passive income problem disappears. | |
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