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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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If I have a full time job and have a business on the side.

Customer Question

If I have a full time job and have a business on the side. Can I use pretax money generated from my business to purchase a rental property?
If I ever sold the rental property in the future then any gains from the sale would then be taxed?
Or do I have to buy the rental property with after tax profits and then I write off any gains against my initial investment?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial & tax advice since 1986.

Hi, I can help here!


That's a great question. The only way you can accomplish that is to use a C-Corp for your business... AND ... have the C-Corp buy the property.


For anything else (sole proprietorship, LLC not taxed as a partnership, partnership or S-Corp) ... these are all tax pass-throughs, which means that the profit is passed through to your 1040 personal return REGARDLESS of whether you USE that profit or not ... then you'd have to do that with after-tax money

Expert:  Lane replied 1 year ago.

If you do this with after tax money (money already taxed as profit from your business) then your investment would be your basis in the new property for purposes of gain or loss ayn sale after that AND for purposes of your being able to depreciate the property (27.5 years for residential property)


If the C-Corp uses capital in the C-Corp to do it then, although there would be tax to the c-Corp for any current year's profit, you COULD use either your capital invested in the C-Corp or retained earnings from previous years. ... Then the C-Corp would pay income tax on rents, take the depreciation and pother rental expenses, just as any individual would, but will be taxed at C-corp rates IF the expenses are more than rental expenses. ... and have it's own basis in the property.


You of course will have your own basis in the C-Corp


let me know if you have questions from here