Tax Considerations When Your Business Rents the Building You Own


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Tax Considerations When Your Business Rents the Building You OwnOne of the best purchases you can make is buying the building your business rents. Of course, you’ve got to buy for the right price and have a sustainable business model to make sure you can afford the rent.

I received a tax and structure question about a case like this.

Question:
“I am looking to purchase a commercial building for my LLC that one of my C Corporations will lease (in lieu of leasing sq footage of my current home – moving soon).
Question: Does the bank requiring the C Corp to be additional guarantor of the RE loan have adverse tax consequences?”

Short Answer: No.

You are holding the property inside an LLC and the point is that the income for making the payments by the LLC really comes from the C Corporation business. The bank wants to make sure there is a solid income stream to protect the loan.

The income that comes from the business to pay for the rent is a deduction for the corporation and it is considered as quasi-passive for the LLC. If there is net income, it can’t be used to offset other passive losses. The income that comes from you or your business for rent is treated differently than rent income you receive from outside parties.

There are a couple of ways to put together a real estate tax strategy. You can wait until you get your tax return done and then learn what you should have done! Or, you can wait until the IRS audits you and learn what you should have done. Or, you can get a jumpstart on all of it.

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