patrick.net

I think there is some law or rule that if a corporation is "substantially identical" to one individual, then it really is that individual. So the IRS might use that to claim you're evading taxes.

Apparently single shareholder corporations are a real thing.

Obviously not in CA as the sale would trigger a Prop 13 tax reassessment. Sale could also trigger a capital gains event if above the $250k/$500k exemption threshold.

S-corps may receive extra scrutiny from the IRS, especially when it comes to the allocation of income between distribution and salary. Salaries paid to S-corp shareholders must be reasonable, and not artificially low to avoid taxes.
https://www.forbes.com/advisor/business/s-corporation/

Between the maintenance costs, property manager costs, and these business development expenses, that $42,000 is zeroed out to zero income.
Depreciation is the big expense that can't be avoided (though it can be deferred by an individual). Straight line method (1/27.5) is almost $20k a year if the house value (total property-land) is around $500k.

Al says: When you get tired of this business, you shut down Newco, and turn over the company's assets to the shareholders, you.

The liquidating corporation may also adopt a liquidation plan that would generally be made through either a single distribution or a series of distributions made over no greater than a three-year period starting with the first distribution (Sec. 332(b)(3)).
Generally, the shareholder's basis in the property received equals its FMV at the time of distribution (Sec. 334). The shareholder will use the carrying period on its shares in order to determine whether the gain is long-term or short-term capital gain. The received assets will then start their carrying period anew as of the date of the liquidating distribution. The liquidating corporation is generally required to recognize gain or loss on the assets disposed of (Sec. 336). This amount is calculated as if the property were sold to the shareholder at the FMV of the assets.
https://www.thetaxadviser.com/issues/2020/oct/tax-rules-liquidating-corporations.html

So I believe you'd have to pay long term capital gains on FMV-$800k, which is fine. However, the corp will have to pay taxes on FMV-depreciated value of house.
Depreciation recapture is inevitable (though can be avoided in death). IANAL. YMMV...

cisTits says

Al_Sharpton_for_President says

Newco hasn't raised any money, and so you sell your $800,000 home to Newco for a nomnial fee, let's say $1.00.

IRS and most state revenuers will come down on that like a ton of bricks, I bet.

I agree. This is too much of a red flag and easy target by the IRS and state revenue authorities.

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EBGuy says

Depreciation is the big expense

Thanks! Is annual depreciation mandatory, or can you not do it to avoid depreciation recapture upon sale, or, in this case, transference back to the former owner (sole shareholder)?

Al_Sharpton_for_President says

EBGuy says

Depreciation is the big expense

Thanks! Is annual depreciation mandatory, or can you not do it to avoid depreciation recapture upon sale, or, in this case, transference back to the former owner (sole shareholder)?

On structures yes, depreciation is required if renting out.

Also people are under the idea that meals are written off 100% as an expense. Not the case. Also a massive audit trigger if you get carried away with it. The hotel part makes sense if you have proof you met with a broker at the location you travel to. Otherwise the IRS will not see that as an expense and the hotel and meal are taxable.

My former boss did shit like this. In theory it's possible. But you're living on the edge and not paying taxes can get your primary home liened and you can go to jail potentially.

This is why you see these "successful" real estate investors are always holding conferences and trainings. Trump University type stuff. They're generally, not always, not making that much money in reality. Putting on a conference or training and talking for 1 hour makes you more.

They make their money through leverage as it's tax free money. Cash out refi's. You are the bank as the landlord and the tenant is the depositor. Key is to get to property 3 or 4. Then go back and pull out money from 1 to pay yourself, or get more property from the cash with 1 and then pay yourself with property 2 cash out refi. Management is the bitch of it though. It's a pain in the ass is all I'll say.

I'd prefer commercial/industrial type spaces. Hell commercial condos, 2k sf. Sign 2-5 year leases. It's business, no feelings if you have to evict someone. You can do NNN leases and not worry. Up front capital is high, but it's a printing press for $$$ long term.