Tax question: Interest on Loan - Posted by Tim

Real Estate Investing Real Estate Financing
#1

Posted by Tim on March 04, 2002 at 10:58:19:

John,

Thanks for your reply. If I buy the property in my name (i.e., personally) and the loan is in my name, could I get around the DIVIDENDS and DOUBLE taxation issue by immediately selling the property to my C Corporation and have the C Corporation take the property subject to the loan? In this case, wouldn’t the C Corp. be able to deduct the interest expense on the payments made directly to the bank even though the loan is still in my name?

I would assume that I would have to report the purchase and sale on my personal return (there would be no gain or loss since I would sell to C Corp. at my purchase price). Would this be a potential “dealer” issue for me personally?

Thanks for helping me think this through.

Tim

#2

Tax question: Interest on Loan - Posted by Tim

Posted by Tim on February 27, 2002 at 21:17:56:

I have a C Corporation for flipping properties. I take title in my corporation but the bank that provides the financing requires that I sign personally. My corporation has made the interest payments directly to the bank. I want to make sure I report the interest correctly on my tax returns. The bank reports the interest to the IRS under my SSN (note: it is a commercial loan so I did not get a 1098).

Can I deduct the interest on the corporate tax return since the corporation actually makes the payments even though the corporation technically is not liable for the loan? If I do, will there be a problem with my personal tax return since the bank is reporting interest expense that I will not be deducting? Is there a better way to to set this up?

Thanks,

Tim

#3

Re: Tax question: Interest on Loan - Posted by JHyre in Ohio

Posted by JHyre in Ohio on February 28, 2002 at 06:44:26:

When you say that you “signed”, does that mean that the loan is in your name or that you merely guranteed the loan? It makes a difference.

John Hyre

#4

Re: Tax question: Interest on Loan - Posted by Tim

Posted by Tim on February 28, 2002 at 09:27:31:

John,

The loan is in my name not the corporation’s.

Thanks,

Tim

#5

Re: Tax question: Interest on Loan - Posted by JHyre in Ohio

Posted by JHyre in Ohio on March 02, 2002 at 06:21:54:

You personally deduct the loan interest to the extent that you can document that the loan proceeds were contributed to the corporation (I’d probably have loaned the money to the corporation). Payments of the loan by the corporation are DIVIDENDS to you and DOUBLE TAXED if the corporation is a C-corp…that’s why I would lend the money to the corporation and let it pay you (deducting the interest on the loan to you). You would then in turn make payments on the original loan.

John Hyre