Building ownership...Personally vs. business


R

Road Atlas

I am working on a deal to buy an existing business (asset
purchase $650K), and the land & building in which it
operates ($830K). My question is... is there any benefit to
me buying the building as an individual, and then leasing it
to my business , or should I just let the company buy it?

What exactly are the pros and cons of each way?
 
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S

Stuart O. Bronstein

Road Atlas said:
I am working on a deal to buy an existing business (asset
purchase $650K), and the land & building in which it
operates ($830K). My question is... is there any benefit to
me buying the building as an individual, and then leasing it
to my business , or should I just let the company buy it?
It depends on your specific situation. But the conventional
wisdom is (assuming your business is or is taxed as a
corporation), to buy the real property personally and lease
it back to the corporation. That way you are able to take
depreciation and apply it against your personal income,
rather than having it wasted in the corporation.

Stu
 
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G

Gene Utterback

Road Atlas said:
I am working on a deal to buy an existing business (asset
purchase $650K), and the land & building in which it
operates ($830K). My question is... is there any benefit to
me buying the building as an individual, and then leasing it
to my business , or should I just let the company buy it?

What exactly are the pros and cons of each way?
Generally speaking, it usually a bad idea to put an
appreciating asset -like real property - inside a
corporation. The problem isn't so much the corporation
holding the property, the problem arises when there is a
need to get the property out. C corporations don't get the
benefit of the capital gains tax rate so a highly
appreciated asset will get taxed at regular corporate rates.
S corporations get to pass the capital gain on to the
owners, but if the owner wants to take the property out of
an S corp there are deemed sales rules that can easily
generate phantom income - not very pretty. But, by using an
LLC you can move assets in and out between owners - as long
as some timing issues are met - and can either avoid or
greatly reduce the tax effects.

Then of course, there is the issue of putting an appreciing
asset at risk. If the company owns it and the company is
sued, the asset is at risk. If it is held by a separate
entity - and all the hoops are nice and round and have been
jumped through properly - the asset can be protected and
dealt with separately.

Also, you have not mentioned whether this is an asset sale
or stock sale -the difference is significant and will have a
major impact on what you can and cannot do.

I would strongly urge you to find an accountant locally who
is versed in business issues and meet with him to discuss
your options BEFORE you finalize this deal.

Gene E. Utterback, EA
 

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