Buy a House through Business?

[Saajan Bhakta]

Hi All,

My father owns a motel (located in WI) and lives on property and works. He is planning to move across the border to MN (much cheaper health insurance) and live in a house and step away from day to day activity. The motel is under a corporation and with no mortgage. Credit is excellent.

My question is - can he buy a house ( valued at 500k+) while putting the mortgage under the corporation? We essentially would like to put the house mortgage through the corporation to get various deduction such as mortgage, real estate taxes, etc. Is there any other ideas or options for tax savings?

I have heard the hotel owners (or corps or LLC) also buy apartments and let employees live there (rent free) to entice them to keep working for the same company. Can we do something like this?

Any recommendations on who to talk to? I thought I would ask BiggerPockets community as I read posts time to time and learn a lot.

[Jordan Moorhead]

@Saajan Bhakta message @Tim Swierczek, he would know!

[John Woodrich]

@Saajan Bhakta You could buy the house in the corporation however the house has no business purpose so every payment would be a distribution which may be taxable income to him depending on tax status (C vs S Corp) and his tax basis in the company if an S-Corp.  The mortgage interest and other expenses would not be deductible to the corporation if it was his personal residence.

You can try to get creative with this but this is generally a very bad idea.  

[Saajan Bhakta]

@John Woodrich Thanks for your input.

Employee (my father and mother) of the corporation doesn't have any residence.

Any way we can assume the corporation is letting the "employee" stay in this house and can double as an investment for the corporation?

I'm just shooting some ideas - I know you are very knowledgeable John so I thought I'd ask.

[John Woodrich]

@Saajan Bhakta although they are employees and receive a wage like certain staff employees they are not treated the same for tax.  The IRS would look at the house as a personal asset and not a business asset as it wouldn't have a business purpose...

I can't think of a good way to make this even gray for you.  You could maybe twist the facts if they had a personal residence they lived in that was far from the hotel, they needed a house nearby for staff and infrequently when they manage it...  But that wouldn't work here.

You mentioned the move was related to health care - have you considered the income tax consequences?  Income taxes are higher in MN than WI.  It would depend on their tax situation but tax increase may offset the cost of health insurance pretty quickly...

[Tim Swierczek]

@Saajan Bhakta You can already deduct interest on a primary residence, so we are really talking about the other expenses, but there is a cost. A corporation cannot purchase a home using an FHA, VA, USDA, or Conventional loan. This means you are limited to portfolio products that are meant for and priced at investment rates & fees. Your father's corporation will pay thousands more at closing and thousands more per year for the right to the tax deduction of property taxes, utilities and maintenance. The property taxes and insurance may cost more as well.