Saving money on taxes is a great incentive to consider leasing your assets to a corporation. It is common for shareholders of corporations to lease real estate, equipment, and other property, such as vehicles, to the corporation, either directly or indirectly (through a separate Partnership or Limited Liability Company (“LLC”)).
What are the Advantages to Lease Property to a C-Corporation?
There are many advantages to leasing your property to a corporation – the main one being a reduction in taxes. Leasing property to a corporation allows you to have continuous income from the corporation without incurring Federal Insurance Contributions Act (“FICA”) taxes or self-employment taxes. Additionally, you will not have to deal with the double taxation that c-corps generate. Appreciated assets, meaning that the fair market value (“FMV”) of the asset is in excess of the asset’s adjusted basis, that are distributed from the corporation, whether in liquidation or distribution, must recognize gain.
Can a C-Corporation own Real Estate?
Yes, corporations may own real estate. However, the real estate will be subject to double taxation. If the real estate is contributed to the corporation in exchange for shares of the corporation, there should be no tax consequences to either the shareholder or the corporation. However, once the real estate is in the hands of the corporation and it recognizes gain, the real estate will be subject to double taxation. Corporate taxable income is initially taxed at the entity level, and then taxed again by the shareholders upon the corporation’s distribution of its earnings to shareholders as a dividend.
Can I Lease Equipment to my LLC?
Yes. Just like you can lease property to corporations, you may also lease property to an LLC or a Partnership directly or indirectly. There are advantages to leasing property to an LLC as well – the main one being the continuous rental income you can receive from leasing property.