All Forum Posts by: Thomas Morris

Another article from 2008 says this: 

Taxpayers may need the equity in cash from their current residence for a down payment on a new residence. Yet, for noneconomic reasons (e.g., sentimental value, future desire to move back in), they may want to retain the old residence. In this situation, they should consider selling the home to a newly formed controlled entity (for example, a wholly owned S corporation) at fair market value for a mortgage note. The residence can then be rented inside the S corporation and depreciated at the stepped-up FMV basis. The residence is effectively retained with no current tax cost because the gain on the sale is excluded under Sec. 121 (provided the requirements of Sec. 121 are met).

In Letter Ruling 8350084, the IRS ruled that the sale of a residence to a taxpayer’s wholly owned corporation qualified for the former Sec. 1034 gain deferral. In that ruling, the IRS stated that there was no prohibition in the Sec. 1034 rules against selling the residence to a related party and excluding (deferring) the gain. The authors believe this same rationale can apply to the Sec. 121 gain exclusion rules.

Now, this does not completely settle the matter, but it does indicate that in some cases, the sale to an S-Corp is permissible.

It appears that it comes down to intent. If the only purpose for forming the S-Corp is to avoid taxes, it would be disallowed. However if there is some non-economic reason for doing so, the scheme might pass muster.

In case there is any confusion, my situation is taking a personal residence, and moving it to a business residence. I know that when house hacking, there is a combination of business and personal in the same unit. What if one were to contribute their residence to an LLC. Wouldn't this consist of the same thing? The house cannot be be both business and personal at the same time. And if the house ceases to be the personal residence, what happens to the basis? It cannot just evaporate.

I found an article at This Link entitled "Sell Home to S Corporation and Then Make It Rental Property" fits my situation pretty well, except I want to sell it to an LLC that I already own. Would the article apply to my situation as well?

I want to shield the cap gains on my existing home by taking advantage of the the $250k/$500k exemption from cap gains for primary homes.

I charge a cleaning fee because I do not clean a room except on tenant turnover. It encourages longer term renters which is less expensive for me, and it rewards the guest who stays multiple days since they are not subsidizing the short term renters.

Other partnerships are possible as well. Say for example if your IRA wanted to provide 90% of the funds and the partner would do all the work (property management, etc), then maybe the IRA would pay none of the expenses but get 50% of the income. It is not always necessary for both partners to split income with the same percentage as the amount invested,

The question is whether a hotel could buy the building and operate it legally. If so, then the highest and best use would be as a short term rental. If not, then the airbnb usage is not sustainable and the highest and best use is for rental. I operate an airbnb in a building with 9 units that is zoned for business. The appraiser appraised it as rental property based on a rental assumption. The appraisal was extremely low and now I am happily proving the appraiser wrong. Note that if you own the entire building, many of the legal obstacles for running an airbnb go away. However, you need to look at zoning. If it is zoned residential, then probably running an airbnb would be subject to legal challenges. I would consult a COMPETENT lawyer. If it can be legally used as an airbnb, and the demand is there, using it as a rental would be leaving money on the table.

My opinion only. I am not a lawyer....

I've bought my homes through auctions, though I look on MLS and other means as well. It seems that we have an unusually high number of auctions, although I don't have any data to back that up.

I have a close working relationship with a real estate agent, so he feeds me leads from the MLS.

We don't have any REI clubs, but I have attended the Nashville REI club a couple of times. If we can get a core group, it would be great to start one in Bowling Green.

I find Bowling Green to be a good market. You have to watch out however, because you can overpay for a home and it won't cash flow as a rental.

@Wes Farmer welcome to Bigger Pockets. Look me up if you are ever in Bowling Green, I'd like to get together and swap notes.

Tom