Buying a Home with a Business?

[rankandfile]

I am a small business owner and I have always entertained purchasing a home under my corporation (LLC). It would be a home-based business, much like I am doing now. I wanted to get some advice from some of you in the know about the pros and cons of doing something like this. Also, how often do you see this happening in your experience?

[VCJIM]

rank, that’s a fascinating idea I’ve never considered. I’d be interested too!

However, my first thought is we wouldn’t want a house as an asset of our business, in case we get sued. We could lose the house.

[rankandfile]

That would definitely be a downer. I thought of that and it’s part of the reason why I incorporated in Nevada (I understand it is more difficult to pierce the corporate veil of a business there).

[VCJIM]

It is common practice to buy a building (office, industrial, etc) personally and lease it to your business. It protects the investment from lawsuit, you get the building essentially paid for with before-tax-money, and you personally benefit from its appreciation. I imagine the same could be done for a house if you could justify its existence for a business to the IRS.

[sdrealtor]

I wonder what that would do to tax deductibility upon sale of capital gains? I would also expect that interest rates would be higher for what is essentially an investment proeprty.

[VCJIM]

I was going to purchase an industrial building last year. Basically, in addition to the business qualifying for the loan, I also had to personally qualify and guarantee it. I think the interest rate was higher than a comparable sfr, but I can’t be certain.

[PerryChase]

I don’t advise to buy a primary residence throught your LLC:

1. You’ll cause yourself tax problems because the use of the home is income to you and would need to be declared on your personal income tax. The bookeeping complexity is not worth it. This raises a red flag and you might cause yourself to get audited.

2. Obtaining financing may be a problem unless you pay cash.

3. Lawsuits as was mentioned earlier.

4. Corporation may need to declare bankruptcy in the future. Who knows?

5. You loose homeowners exemption for property taxes. $7,000 reduction in assessed value is no big deal however.

6. If you want, you can buy a second/vacation home through corporation. If you make it available to all your employees, then you can justify it as a business expenses. That I would advise.

I know taxes quite well and i can tell you that middle and upper middle class pay a lot of taxes (proportionately) than the rich and the poor. Poor don’t pay much taxes and neither do the wealthiest because of business write-offs and tax shelters.

[rankandfile]

VCJIM- I remember hearing about leasing a home to a business a while back. I think I will look into that some more.

PerryChase- Thanks for the tax info. If you have time and are up to it, maybe you can start a thread related to tax questions….like the thread devoted to mortgage questions. What are some good resources for novices like me to learn about some of the key taxes that come into play for home ownership, business leasing, or even trusts? I’d definitely like to research this some more.

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