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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 482
Experience:  Former IRS Revenue Agent
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We purchased a rental property back in 2003, the property

Customer Question

We purchased a rental property back in 2003, the property was quit claimed into our c corporation, We paid doc stamps then.
Now we are refinancing the property to payoff current loan of 100k, we will be getting a new loan of 110k. The lender now,in the last minute will not close under current corporation. They gave us 2 options.
1- We open a new llc, transfer the property to the new entity at closing
2- we transfer property to our personal name, then we can transfer it back to current corporation.
My questions are as follow.
Will this be a "taxable income?
If this was your loved one, what would be your advice? Why?
Thank You!!
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: no thamks
Submitted: 9 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 9 months ago.

Dear Customer,

Part I.

What the mortgage company wants is to have you personally liable for the mortgage. A C Corporation's protection is too great than what they want.

My suggestion is Option 2, that you transfer the property to your own name; after closing, transfer it back to the C Corp like what you did the last time.

Do not do LLC. It is the same reason that C corporation has more protection.

Part II.

Tax event. Basically, make sure that the C Corporation pays for all the expenses and enjoys all the benefits. Then, transferring the property back and forth is just for you personally to assume the loan liability, and to be personally liable for the debt. If the check is paid to you, the 10,000 is loan and is not income. However, in the future, if the company is going to pay for the debt, this become your benefit. Therefore, make sure that you transfer the entire 10,000 to the corporation.

There is a doctrine called "substance over form". The only economic effect and business purpose is to obtain the loan refinance. The transfer property back and forth should not be a taxable event.

Please feel free to follow up.



Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP