Q: I am a big fan of your radio show and listen quite regularly. I have a question for you about selling a house to a corporation. I’ve been told that if one has a company, which is a registered corporation, that the owner of the home could sell their home to that corporation.
What are the tax benefits behind selling a home to a corporation and would it be a regular sale? Wouldn’t there be capital gains tax to the extent allowable? What kind of paperwork that would entail?
I am sure it is not as straightforward as just writing to the title company and having the ownership transferred.
A: You’re right, transferring title from an individual to a corporation can be complicated. But the real question you have to answer is why would you want to transfer title of your home to a corporation?
Transferring the actual title should be relatively easy. You would draw up a document that would transfer ownership of your home to the corporation and record that document with the office that accepts land documents for recording where the home is located. You might have some other forms to complete but the documentation you would need is rather simple.
The complications start on the tax side. Generally, homeowners receive a tax benefit from the local real estate tax departments on the home’s real estate taxes. Corporations that own real estate generally do not qualify for tax benefits given to individuals. So you might lose out on that tax break.
Also, if there is later a profit on the sale of the home, the corporation could not take the $250,000 exclusion from federal income taxes on the profits from the sale of the home.
Finally, at the time the property is sold to the corporation, the individual selling the home would have a taxable event. That is to say, the individual might have to pay taxes or recognize the sale as a sale to the corporation and pay federal, state and local taxes that may be due from a sale of a home.
These days, a transfer of a home from an individual to a corporation might be suspect and if the intent of that transfer is to create a tax benefit to the homeowner without a true business purpose, the IRS could view the sale as a sham and could fine the homeowner for violating tax laws.
Before you start filling out any title documents and begin the process of transferring title to your home to your corporation, you have to figure out three things: a valid reason for the transfer to the corporation; a valid reason for the corporation to hold title to the home; and, whether you are willing to forego the benefits that homeowners get from taxing authorities.
Once you’ve figured it all out, then you should sit down with an estate planner or tax attorney to determine whether you should move forward on the transfer.
I know of few cases where the transfer is justified. In some cases, the property is to be used for corporate housing or when investors wish to hold properties for investment purposes and not as their personal residences.
If you’re simply trying to find a solution for an estate planning purpose, you should look into putting your home into a living trust, which will allow title to transfer quickly and easily to your heirs.
Consult with an estate or real estate attorney for further guidance.