Here's a great
way to take up to $500,000 out of your corporation absolutely and
legitimately --- TAX FREE.
Let's
assume that you've outgrown your principle residence and want
to move into
another one. Instead of following the normal routine of putting
your house up for sale and waiting for a buyer, why not consider
selling your house to your corporation?
Selling
your personal residence to your corporation is one of the smartest
tax
decisions you can make. Not only is it an excellent way to
pull money out of your corporation TAX FREE, but it's also a great
way to give yourself a tax-sheltered investment. Here's
what I mean:
If you want
to sell your personal residence and you own either a C or an S corporation,
selling your home to the corporation gives you the following tax
benefits:
You can
pull money out of your corporation TAX FREE! - This is because
the gain on the sale of a principle residence can be excluded
if the gain is $250,000 or less ($500,000 for married couples
filing jointly) as long as you meet certain requirements.
Your
company can rent out the house and generate BIGGER tax deductions
- Since you sold your personal residence to the business, it
now has a stepped-up basis (higher value) and can generate larger
depreciation deductions than if you rented out the house yourself.
If your corporation is an S corporation, these deductions can
be used to offset your other income.
We
just used this strategy much to the delight of one of my clients. Here
are the facts and circumstances of this particular case:
My clients,
Eric and his wife (not their real names and situation used by
permission), are the 100% shareholders of a small and very
successful printing company. The printing company is a Subchapter S corporation.
Eric and his wife are expecting their fourth child in less than
six months. They have both decided that they will need a bigger
home. Instead of putting their current home up for sale,
Eric and his wife have decided to keep it for investment purposes.
However,
instead of keeping the home personally, they have sold it to
the their corporation
for its fair market value of $285,000. Since the cost
of the home plus improvements is $175,000, Eric and his wife have
a gain on the sale of their residence of approximately $110,000.
Since married
couples filing jointly can exclude up to $500,000 of gain on the
sale of a principle residence (subject to certain restrictions),
Eric and his wife will NOT pay any federal tax whatsoever
on the transaction.
In
addition, the corporation now has an investment worth $285,000
that it will
depreciate as a rental property. If, at the end of the year,
the expenses are greater than the rental income, the owners of
the
S corporation (Eric and his wife) will have a rental loss that
they can use to offset their other income.
Can
you see the beauty in using this tax strategy?
In
addition, if your corporation generates adequate cash, you can
structure your
own financing. Of course, everything has to be documented
and executed as if you were selling it to a stranger. In
other words, you can't sell your $200,000 home for $700,000 (unless
that's
the market value).
This
strategy works even better when you have a C corporation. You can avoid
the double taxation trap completely. Also, you can even use
this tactic when you don't completely own your corporation. However,
you'll have to consider the risks of losing control of the home
to a fellow shareholder.
Nevertheless,
if you're looking for a way to pull out money from your small
business
corporation TAX FREE, consider using this strategy. As always,
be sure to consult with your professional tax advisor before considering
this or any other tax or investment strategy
This article may be freely reprinted on your website or in your newsletter provided
you follow these instructions.
If
you'd like more information or would like to discuss this
article personally with me, please write to
me at alex@goldminetactics.com
See
below for author information.
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