From: floydb@rpi.edu
Subject: re: >>>>> S corporation
Date: Thu, 7 Jan 1993 18:22:22 GMT

In article <ssimmons.726413036@convex.convex.com> ssimmons@convex.com (Steve Simmons) writes:

stuff deleted

>Only, the 30% equity can be transferred to the business.  The bank made 
>the loan to you, not the company. If the company went bankrupt, the bank 
>would have no recourse to collect money if the company owned the property
>completely.
>
>> 1- Do the lender has to be notified for this exchange? as I still will
>> be responsible for the mortgage payment if the Co fails to do so.
>
>Legally, I don't know. If everything is above board, I would probably 
>do so to cover my a--. 
>
>> 2- can we declair the morgage as a Co. debt for tax purposes and deduct
>> interest as a business expense.
>
>Finally, here is something that I can give you the right answer on.  It 
>doesn't make a difference!!!!  You can deduct the interest payments as a
>rental expense on your own tax forms, not the company's.  The net effect 
>should be  the same.  Note, it is not an itemized deduction. It is literally
>an expense against your property. 
>
>Thank you. 
>
>						Steve Simmons
>

I'll add my untutored opinion to the discussion...

I co-own rental property. According to our bank, no matter who is involved,
if the 'title' of the property in anyway changes we have to refinance the
loan with the bank. Thus, I do not believe that you can even effectively
transfer the 30% equity, mentioned above.

Common sense tells me this sounds right. The bank and I and my partner are
listed on dozens of documents as 'owners' of the property. All of these
documents must be updated if 'ownership' changes (e.g. transfer of equity).
If I want to buy my partner out I will have to refinance the mortgage with
me as sole 'owner' (same as an S-Corporation 'buying' you out).

As far as taxes are concerned, rental property is accounted for on the
"Rental/Royalties Gain/Loss form" (Schedule E, C, "Depreciation/Amortization",
etc. documents). (I don't have the forms at hand, these references
as such may be inaccurate.) The bottom line of the form is entered on your
1040 (gain or loss) in the "Income" section. Many rental properties realize
a 'paper' loss due to depreciation and expenses, thus positively effecting
your personal income tax picture (you pay less tax because you had less
income, after the rental loss, on paper). At worst you should try and break-even
on paper, unless you have little other income and your tax bracket isn't effected
by adjusted income. As an "income producing property" you are allowed more
deductions than you would be if the property were your home, whether or not 
the property is owned by an s-corporation. Thus, keep track of every penny
you spend on the property and deduct that from the rental income, yeilding
your net gain/loss (think of it as an investment and not as a salary).

2 cents

barry

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