How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Ed Johnson Your Own Question

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
586644
Type Your Tax Question Here...
Ed Johnson is online now
A new question is answered every 9 seconds

The mortgage of my house has been paid off, only I need to

Resolved Question:

The mortgage of my house has been paid off, only I need to pay property tax about $4000 every year. I own 100% of a S-corp, and I run the business 100% from my home. Should I sell my house to my S-corp? What is the advantage or disadvantage?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

DearCustomer

 

Is this a multiple owner S-corp? Or simpley a husband-wife s-corp?

 

What is the S-corp business?

 

Customer: replied 5 years ago.

I am the only owner of the S-corp. My wife is not a shareholder. Well, her name is XXXXX XXXXX the S-corp.

 

The S-corp is a consultant business. I do software programming.

Expert:  Ed Johnson replied 5 years ago.

DearCustomer

 

Based on the information given, I do not recommend it.

 

Here are the reasons:

 

1. No one would get to take advantage of the capital gains exclusion. When you sell the house, you get to take capital gains exclusion of up to 500,000 if you file a married return. If the S-corp owns it, you do not get the exclusion. so you pay capital gains tax.

 

2. If you live in the home until death, then you have no home to will to decedents, and those who inherit the home may not get the stepped up basis which provided generous tax relief when they sell it.

 

3. You have to sell it to the business. If you quick claim it, then you are legally liable for the note and the S-corp is on title. You have to sell it to the S-corp.,

 

4. If the corp owns it, you would have to pay FMV rents else you are receiving a benefit, one of you would have to pay taxes on the FMV rent. (whether rent is paid or not) That is if you receive living there rent free, then that is income to you; and if you pay rent, the S-corp has to report the income and you pay taxes on it.

 

5. You risk loosing the house if the business fails. It is an asset to the S-corp for which creditors can come after.

 

 

 

5.

Customer: replied 5 years ago.

Can you explain more about #3? what do you mean "you have to sell it to the business"?

Expert:  Ed Johnson replied 5 years ago.

When you transfer the deed to the home to the business you haver the option of a quick deed.

 

A quick deed transferring the home to the S-corp, means that the property becomes the property of the business. It is not your property any longer. As such, if there were a mortgage (you state that your mortgage is paid off), you would remain liable for the mortgage, but the S-corp becomes liable for the property taxes. Your equity in the property is gone, but you have equity then in the business. BUT this is a wash because you are the only share holder. So value of the business increases, with no expense of acquisition.

 

When you dispose of the business later there is capital gains tax on the business, and you have capital gains on the home if you have an asset sale. either way it results in a capital gains later on.

 

If you sale the property to the business, then if there were a mortgage, then he mortgage is paid off at sale and the business becomes 100% liable for all the loan if any and the taxes.

 

IN addition.

 

When you gift it, by quick deed, then the property has a cost basis equal to your cost basis, which leaves the business with a large capital gain at sale.

 

If the business buys it from you, there is an acquisition cost, and a new cost basis, which, even though the home is subject to capital gains at sale is less than if you gifted it.

 

when you sell it to the business, you will haver a capital gain, but if you have lived in it for two of the past 5 years, you can take a capital gain exclusion. AS long as the IRS does not consider you an alter ego corporation, you will still be able to take the capital gain exclusion when you sell it to the S-corp.

 

When you keep living in this property if you live rent free, then this is a benefit on which you have to pay taxes, and the property is depreciable, not held for investment. (for use of the shareholders or employees where you as single shareholder are considered an employee corporate officer).

 

If you rent from the corporation it is depreciable property.

 

IN addition to capital gains tax, the corporation is subject to paying capital gains and recapture tax on accumulated deprecation when and if the property is sold.

 

In most instances, it never pays to move private property that is a principle residence to corporate ownership.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.