Land Trust and Lease Option to Corp.
We have purchased a propertyand placed it into a Land Trust. Can we legally lease/option the house to our corporation for a set amount? Which inturn lessens the capital gains (personally)? In doing so can the property still be depreciated on personal taxes?
Purchase @ $100K
L/O to our Corp. $105K
Corp sells @ $130k
Capital gains (personal) $5k
Corp profit $25K which can be used for benifits/business trips.
I know corporations pay a higher tax over $50k (double tax) but money in a corp can by used for many other benifits?
same post is on tax board
Thanks
Sire
Quote:
On 2003-04-16 15:51, sire wrote:
We have purchased a propertyand placed it into a Land Trust. Can we legally lease/option the house to our corporation for a set amount?
A: Yes, but the tax benefits you are seeking may only be illusory, depending on the legitimacy of the business trips/benefits. See my post on the tax page for a general discussion of the use of related entities.
Which inturn lessens the capital gains (personally)? In doing so can the property still be depreciated on personal taxes?
Purchase @ $100K
L/O to our Corp. $105K
Corp sells @ $130k
Capital gains (personal) $5k
Corp profit $25K which can be used for benifits/business trips.
I know corporations pay a higher tax over $50k (double tax) but money in a corp can by used for many other benifits?
same post is on tax board
Thanks
Sire
A: Actually, your tax rate will go up! (I know it may be shocking but check out Section 1239 of the IRC). Under Section 1239 of the IRC, if a related party/entity sells depreciable property to another related party/entity, the capital gain is turned into ordinary income. So, your tax rate would increase on the sale. While the ordinary income tax rates are the same as capital gains tax rates for a C corporation, I don't think you will see the benefits you are seeking.
I would just keep the property in an LLC and lease it or L/O it to a unrelated third party. It is simpler and will achieve the same tax results. (note: if the LLC is considered in a business, it can take the same business deductions that a corporation can take).