S corp buying personal residence? - Posted by Mike (MI)

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S corp buying personal residence? - Posted by Mike (MI)

Posted by Mike (MI) on June 08, 2004 at 13:24:02:

I heard that an S Corp (maybe it was C) could buy a house and lease it to an Officer of the Company (me) at a discount.
The reason given was that said officer has to be on call at all hours to answer phone calls, etc.
I stand to make a good chuck of change in the next few months (S Corp) and would like to buy a new primary residence.
Has anyone done this? Is it legal?

Thanks in Advance,

Re: S corp buying personal residence? - Posted by Roger Garay, E.A.

Posted by Roger Garay, E.A. on June 09, 2004 at 16:27:35:

The problems I see arise from the three little words, “at a discount.” This is a transaction between related parties and as such needs to be meticuouly structured so as to avoid even the appearance of impropriety. The transaction needs to be “at arms length” (Fair Market Value for the rent amount) to pass muster if challenged.

Further, if the tenant/officer is given the discount because he needs to be “on call, etc.,” that is compensation for services and subject to income and Self employment taxes (or otherwise reflected in his corporate salary – officers are by definition employees, by the way).

In the Property management business, for example, when a resident manager is given free lodgings plus a small salary (the smallness of the salary jusified because they are given free rent)they are assessed on their W-2 for a portion of the FMV rent on the lodgings. In their case the resident manager is “required to live in that facility for the convenience of the lanlord” who in turn may be required by law to have a resident manager with more exxtensive duties than you describe. In your case (admitedly not an exact match as to facts and circumstances) the S-corp should not care where the tenant/officer lives as long as he/she is “on call, etc.”