[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

Flu,

Why do you presume someone is a tax cheat just because they use a corporation to buy/hold/rent back their home? Are you aware of a particular tax code provision that says this is not allowed?

It is perfectly legal to own rental property, and also perfectly legal to convert a residence into a rental property (there are rules about establishing your cost basis as the lesser of acquisition cost and FMV at the time of conversion, but assuming you follow the rules, there is no “cheating.”

The only difference is that the shareholder of the corporation is also the renter. As long as they are paying themselves Fair Market Value rent, what’s the difference???

Heck, if the corporation makes money, it has to pay taxes. Furthermore, the corporation cannot take advantage of the tax-free gain ($250K or $500K), and there are annual expenses involved (separate tax return, fees to establish and maintain the corporation).

So, it would only make sense to do in certain situations, namely, where the ownership expenses exceed FMV rent, and if values go down between establishing as a rental and eventual sale.

[PatentGuy]

True, Flu, but the AMT rate is 28%, whereas the top marginal rate is 35%, going up to 39.5%, so you still pay more than the AMT rate if you are “rich”, even with the lost deductions. This will be especially true starting in 2011, when the itemized deduction phase-out is back in full force, since AMT income will be much closer to regular income.

Be thankful you don’t have New Jersey style property taxes (yet) in CA. AMT must crush the $250K earners in New Jersey who are paying $25K and up in property taxes in addition to state income taxes, plus mortgage interest.

[PatentGuy]

True, Flu, but the AMT rate is 28%, whereas the top marginal rate is 35%, going up to 39.5%, so you still pay more than the AMT rate if you are “rich”, even with the lost deductions. This will be especially true starting in 2011, when the itemized deduction phase-out is back in full force, since AMT income will be much closer to regular income.

Be thankful you don’t have New Jersey style property taxes (yet) in CA. AMT must crush the $250K earners in New Jersey who are paying $25K and up in property taxes in addition to state income taxes, plus mortgage interest.

[PatentGuy]

True, Flu, but the AMT rate is 28%, whereas the top marginal rate is 35%, going up to 39.5%, so you still pay more than the AMT rate if you are “rich”, even with the lost deductions. This will be especially true starting in 2011, when the itemized deduction phase-out is back in full force, since AMT income will be much closer to regular income.

Be thankful you don’t have New Jersey style property taxes (yet) in CA. AMT must crush the $250K earners in New Jersey who are paying $25K and up in property taxes in addition to state income taxes, plus mortgage interest.

[PatentGuy]

True, Flu, but the AMT rate is 28%, whereas the top marginal rate is 35%, going up to 39.5%, so you still pay more than the AMT rate if you are “rich”, even with the lost deductions. This will be especially true starting in 2011, when the itemized deduction phase-out is back in full force, since AMT income will be much closer to regular income.

Be thankful you don’t have New Jersey style property taxes (yet) in CA. AMT must crush the $250K earners in New Jersey who are paying $25K and up in property taxes in addition to state income taxes, plus mortgage interest.

[PatentGuy]

True, Flu, but the AMT rate is 28%, whereas the top marginal rate is 35%, going up to 39.5%, so you still pay more than the AMT rate if you are “rich”, even with the lost deductions. This will be especially true starting in 2011, when the itemized deduction phase-out is back in full force, since AMT income will be much closer to regular income.

Be thankful you don’t have New Jersey style property taxes (yet) in CA. AMT must crush the $250K earners in New Jersey who are paying $25K and up in property taxes in addition to state income taxes, plus mortgage interest.

[PatentGuy]

By the way, the concept of using a corporation to buy a home in order to fully deduct the mortgage interest sounds too easy to be true.

So, the corporation buys/owns the home, pays for any mortgage, maintenance, taxes, insurance, maybe utilities, whatever can be deducted as business expense, such as depreciation. The underlying person(s) (shareholders) rent from the corporation at fair market rent. If the rent is less than the toal exepnses, you have a tax deduction that can be passed through to the shareholders (if you make more than $150K, has to be carried over, but can be washed-out when you sell).

Am I missing something?

I suppose one drawback is that a corporation cannot take advantage of the $500K tax-free gain (another cause of the housing bubble), should real estate ever go up again in the future. But, any gain would be taxed at long term cap gain rates, and any loss could be deducted at full income tax rate.

[PatentGuy]

By the way, the concept of using a corporation to buy a home in order to fully deduct the mortgage interest sounds too easy to be true.

So, the corporation buys/owns the home, pays for any mortgage, maintenance, taxes, insurance, maybe utilities, whatever can be deducted as business expense, such as depreciation. The underlying person(s) (shareholders) rent from the corporation at fair market rent. If the rent is less than the toal exepnses, you have a tax deduction that can be passed through to the shareholders (if you make more than $150K, has to be carried over, but can be washed-out when you sell).

Am I missing something?

I suppose one drawback is that a corporation cannot take advantage of the $500K tax-free gain (another cause of the housing bubble), should real estate ever go up again in the future. But, any gain would be taxed at long term cap gain rates, and any loss could be deducted at full income tax rate.

[PatentGuy]

By the way, the concept of using a corporation to buy a home in order to fully deduct the mortgage interest sounds too easy to be true.

So, the corporation buys/owns the home, pays for any mortgage, maintenance, taxes, insurance, maybe utilities, whatever can be deducted as business expense, such as depreciation. The underlying person(s) (shareholders) rent from the corporation at fair market rent. If the rent is less than the toal exepnses, you have a tax deduction that can be passed through to the shareholders (if you make more than $150K, has to be carried over, but can be washed-out when you sell).

Am I missing something?

I suppose one drawback is that a corporation cannot take advantage of the $500K tax-free gain (another cause of the housing bubble), should real estate ever go up again in the future. But, any gain would be taxed at long term cap gain rates, and any loss could be deducted at full income tax rate.

[PatentGuy]

By the way, the concept of using a corporation to buy a home in order to fully deduct the mortgage interest sounds too easy to be true.

So, the corporation buys/owns the home, pays for any mortgage, maintenance, taxes, insurance, maybe utilities, whatever can be deducted as business expense, such as depreciation. The underlying person(s) (shareholders) rent from the corporation at fair market rent. If the rent is less than the toal exepnses, you have a tax deduction that can be passed through to the shareholders (if you make more than $150K, has to be carried over, but can be washed-out when you sell).

Am I missing something?

I suppose one drawback is that a corporation cannot take advantage of the $500K tax-free gain (another cause of the housing bubble), should real estate ever go up again in the future. But, any gain would be taxed at long term cap gain rates, and any loss could be deducted at full income tax rate.

[PatentGuy]

By the way, the concept of using a corporation to buy a home in order to fully deduct the mortgage interest sounds too easy to be true.

So, the corporation buys/owns the home, pays for any mortgage, maintenance, taxes, insurance, maybe utilities, whatever can be deducted as business expense, such as depreciation. The underlying person(s) (shareholders) rent from the corporation at fair market rent. If the rent is less than the toal exepnses, you have a tax deduction that can be passed through to the shareholders (if you make more than $150K, has to be carried over, but can be washed-out when you sell).

Am I missing something?

I suppose one drawback is that a corporation cannot take advantage of the $500K tax-free gain (another cause of the housing bubble), should real estate ever go up again in the future. But, any gain would be taxed at long term cap gain rates, and any loss could be deducted at full income tax rate.

[Author]

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