Discussion:Corp real estate - shareholder use

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Discussion Forum Index --> Basic Tax Questions --> Corp real estate - shareholder use


Discussion Forum Index --> Tax Questions --> Corp real estate - shareholder use

Natalie (talk|edits) said:

July 8, 2008
I'm having a difficult time finding out how to treat shareholder personal use of vacation property owned by a corporation. All of the information I've found relates to individuals and S-corps. Here are the facts:
  • Corp owns condo and has net income from it
  • Shareholders use property for two weeks out of year; other relatives also use it for another week or so.

Can someone provide some guidance in this area? It seems like there should be some amount reported as fringe benefits here, but I haven't found anything definitive on that either.

Marcilio (talk|edits) said:

8 July 2008
There's a good reason you can't find anything on C Corp ownership of a condo. No one in their right mind would have a C Corp own real estate. Ostensibly, if the Corp is renting the property, then the personal use by the S/H & family would be a taxable fringe benefit.

The solution is to transfer the property to an LLC that is set up by the S/H. Although this is a taxable event, with today's low real estate values there may not be a tax to pay. The LLC can rent to the corp & let personal use be treated the same as vacation property.

The additional advantage to this is that if the corp pays FMV rent, there may be a positive cash flow that the members can receive outside of the corporate compensation structure.

CrowJD (talk|edits) said:

8 July 2008
Natlie: If you have RIA Federal Tax Handbook X Year, look at Para. 1569 and 1570. "Expenses to which "directly related" and "associated" tests don't apply." AND "Entertainment Facilities". Also: Code Sec. 274, Reg. 1.274. Should shed some light on what current tax treatment should be, or not be.

P.S. Don't tell me: is this the tennis shoes and jeans people at it again? lol

Riley2 (talk|edits) said:

8 July 2008
For specified employees, the deduction allowed to the corporation would be limited to the amount of the income reportable by the specified employee (fair market value). The 50% limit should not apply.

For non-specified employees, the deduction to the corporation would not be limited to the amount of income reportable to the employee; however, the employee would be required to include the fair market value of the use of the entertainment facility in gross income. Again, the 50% limit should not apply.

Natalie (talk|edits) said:

July 8, 2008
Thanks guys. Yuck. I'm sure there has not been any kind of adjustment for personal use in the past. Condo was purchased in 1973, which appears to be before some of these entertainment rules even came about. I need to find out whether there's any way shareholder's stay at the condo is considered business, but I think that would be a real stretch. I guess I'll also need to find out what the weekly FMV is, but I'm leaning toward recommending that the other relatives simply pay for their stay and let the personal use drop back down to 14 days/year.

Crow, no, this is not the uniforms client. That client was an S-corp.

RoyDaleOne (talk|edits) said:

8 July 2008
The corporation should be paid at fair market value for the personal use.

If need or want more information let me know.

Natalie (talk|edits) said:

July 9, 2008
Well, I missed the part about corps not falling under the 14-day rule. Thank you, Roy, for clarifying that for me. Now I have to go play the bad guy and tell them they need to either pay FMV or include the value in their wages.

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