Can I title a house to my S-Corp and sell to myself later on?

Question

I’m trying to see if the broker I’m working with if correct or not.

I’m buying a house to fix the foundations and a few other things then out a mortgage underbit and use as my personal residence.

I rehab houses for a living and have an S-Corp I run my business through.

My broker is telling me I can’t title/deed the house to my company and then sell it to myself and my fiancé after the repairs are done and put a mortgage under it.

I’m borrowing the money the initially buy the house . Then once foundation is fixed we can get the mortgage under it as it will not make past appraisal is the current condition.

Thank in advance!

Robert Carraway · Answer

@Cole MitchellSo, why do you think using the S-Corp is helpful? It seems to me that you are potentially missing out on the tax advantage of living in your flip. If you live in it for at least 2 years, you can avoid paying any tax on the appreciation. If you rehab it in the S-Corp and sell it to yourself, wouldn't you have some taxable profit in the S-Corp? Why not just buy it personally, rehab, and do a cash out refi?

Basit Siddiqi · Answer

@Cole MitchellYou can certainly sell an asset by an S-corp to the shareholders as long as the sale is at an arms length transactions.The questions is should you.If you plan to acquire it in an S-corp(you will be forgoing the section 121 exclusion which you said you are okay with) if you are going to just sell it within a year - you should just sell it directly from the S-corp.Transferring the property from the S-corp to you personally and then eventually the buyers will cost more in title work. It may also be a taxable transaction when selling from the S-corp to you personally.

Cole Mitchell · Answer

leave the capital gains out.Regarding the loan to buy the house initially and cover the renovations is through a separate bank we work with. I have someone else take that loan out in there name at 5% interest. I then sign a promissory note with that person and my business . I pay 10% interest on that money. That covers the banks 5% and makes them 5% for taking this loan out for me. I do this because my credit doesn’t allow be to secure a loan directly with this bank yet. Now at this point in the process. I have the rehab money and the foundation and a few other renovations are done Once the renovations are done I get a mortgage and buy the house from Mitco , my business, the mortgage pays off the first banks loan that coveres the initial purchase of the house and the rehab funds and the interest for that loan/money. (The promissory note previously mentioned)My question- can I , as an individual, buy the house from my business. ? The purchas if the house from my business to me persoanally as an individual will be done with FHA loan .Hopefully that clears up any questions about the process. I’m nogoing concerned about capital gains or things like that. But thank you for calling that out, it’s a great point. 😊 We are getting this house for a terrific price, 140k. it needs about 50k to fix foundaruon(worst part of the house ) and other Things like paint , floors, kitchen. Fixtures etc once these things are done the house is worth 300k 🤑 making for a nice profit. My fiancé and I are going to live here for a year or so and enjoy the work that was done. Then sell and we’ll do this process agin oncenor twice more until we have enough cash to pay off our debts and buy a house outright. - that’s the goal

Chris Seveney · Answer

Cole Mitchell How are you taking out the loan? It’s my understanding a business cannot take an FHA loan. As a prior borrower mentioned why take it as an s Corp then sell to your house as you will pay capital gains on it ? Need more info to understand what your goals are ?

Cole Mitchell · Answer

what I’m told is that I( my company/s-Corp) can sell the house to me personally This doesn’t sound accurate as every house I’ve sold is sold from my company to the buy an individual. Is he incorrect ? Or am I?

Cole Mitchell · Answer

that’s not an option, unfortunately. We played with that idea but we are doing an FHA mortgage After the house foundation is fixed. The refi isn’t possible to do for 12 months because of regulations and that’s not going to work with the time frame I’m on. I would do conventional but I’m not qualified credit wise. Well are oolanning in living in the house for a year or two maybe more