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The Online Advisor - October 1999
Who should own your business real estate?
If your business is incorporated, it is often a good idea to personally own the real estate used by your corporation.
If appreciated real estate is sold by a corporation, the gain will be subject to double taxation if the corporation distributes the money to you. However, if you own the real estate personally, there is no double taxation. Though the double taxation generally does not apply to S corporations, there can be tax problems when an S corporation sells its operating business and its real estate.
The general advice is for you to own the property and lease it to the corporation. Because of the depreciation, you may well generate a tax loss on your personal tax return.
You might consider having another family member own the real estate; then the property will not be part of your estate. That could save estate taxes.
There are advantages to personal ownership of the real estate not related to taxes. As the value of the property increases, you may be able to generate cash by refinancing. Also, if the corporation does not own the real estate, you can readily sell the business and keep the property.
Property now held by your corporation can be transferred to you via a sale. You could then lease it back to the corporation.
The advantages of personal ownership of business real estate are significant. In reviewing the benefits in your particular situation, you must give due consideration to the passive loss rules and other complexities of the tax laws. See us before you buy business real estate or change the form of ownership on real estate you already have.