Sell Property to Yourself | S Corp Capital Gains Tax Planning

Welcome back! What did you think of our Property Management Software? Are you subscribed to our feed and receiving email updates?

Selling property to an S-Corporation may be beneficial in some specific situations, like if you are trying to meet requirements for the two year rule ($250/500k exclusion), or if you are trying to take advantage of depreciation on appreciated property.

For example, say you lived in a property for three years, and rented it out for the next seven years – since you haven’t lived there for two out of the last five years, you cannot sell the property as a primary residence to avoid the capital gain.

However, after moving out of the property, you sell it to your own S-Corporation, which allows you to exclude capital gain (up to $250k, $500k if married filing jointly) because requirements for the two-year rule have been met. The other advantage is you can have a new basis for depreciation on your appreciated property.

Say you purchased a home for $50k many years ago, and it is worth $500k now. If you decided to rent it out, the basis for depreciation would be the original basis of $50k. But after selling it to your S-Corporation, you can depreciate the new basis of $500k. Clearly this will bring you substantial tax savings.

Selling to your S-Corp isn’t for everyone though. You should avoid using this strategy if you cannot take advantage of the exclusion amount. For example, you sell your primary residence with a gain of $240k to your S-Corp, and pay no tax due to the exclusion. However, if you did not meet the exclusion, the $240k gain would be taxed at ordinary income tax rates, and it would have been more beneficial to just sell the property and pay capital gains tax of 15% instead.

This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Sell Property to Yourself | S Corp Capital Gains Tax Planning is brought to you by SimplifyEm Pay Rent Online and Property Management Software

You might also want to read:

1. Capital Gains Tax Planning | Universal Exclusion for Sold Rental Property There are some exceptions to the Universal Exclusion (2 Year Rule), which allows exclusion on the gain from the sale of a primary residence. If the two-year use or ownership......
2. Capital Gains Tax Planning | Principle Residence 1031 Exchange If you sell a multiple-unit property which includes your primary residence, the sale may qualify for a 1031 exchange, and you may be entitled to the $250,000 exclusion on capital......
3. Tax Planning | Avoid Capital Gains Tax on Rental Property you Want to Sell To avoid paying capital gains tax on rental property you want to sell, consider moving into the property and making it your principle residence before selling it. Gain on the......