The Best Way for Businesses to Own Real Estate
Profit Ability Article Highlight

A common mistake made by owners of private businesses is to have their corporation own the real estate used for the business. This creates a problem when the company eventually sells the real estate because they are hit with a double tax bill. First, the corporation pays taxes on the sale of the property. Then, the shareholders are taxed on the proceeds they receive from the corporation.

A better plan is for the business owner to own the property personally or in a limited liability company, then lease it to the corporation. The advantage of this structure is that if the owner wishes to sell the real estate, he can do so for his own account, avoiding corporate taxes. Secondly, the owner can refinance the property for his own benefit. Thirdly, lease payments are not subject to employment tax, as wages received from the corporation would be. They are actually fully deductible by the corporation as a business expense. Finally, if the owner dies while still holding ownership of the property, the heirs receive the property at its appreciated value as its cost basis.

If your corporation owns real estate used in business, consult a tax professional at Talley & Company to find the best way to address the issue.