If you're a business owner, your company might own an office
building, a warehouse, or other property.
Assuming your company has owned the property for many years, the real
estate may be generating few if any depreciation deductions. In such a situation, consider buying the
property personally, perhaps using borrowed funds. Then your company can lease the property from
you, so the company will have continued use of the real estate.
Such a transaction can have advantages for you and for your
company. The company will receive cash
for expansion, hiring, and so on, even after paying tax on the gain. Ongoing lease payments from the company to
you will be deductible for the company, replacing depreciation deductions that
may have declined or disappeared altogether.
At the same time, you'll receive leasing income from the
company. You'll have just purchased the
real estate, in this scenario, so you'll be able to start a new depreciation
schedule, and the depreciation deductions can reduce the tax you'll owe from
this income stream.
If the property is in a C Corp., this is an opportunity to
take it out of the C Corp. which makes
it easier to transfer since you will own it personally.
Clearing the hurdles
To obtain these benefits, you must enter into a valid sale
and leaseback. Here are the relevant
You should pay a fair price for the
building. Today's depressed real estate
market and low mortgage rates might make it easier for you to buy the property.
The lease payments should be comparable to what
unrelated parties are paying for similar leases. Any lease renewals also must be set as fair
Any repurchase option also must be at fair
The property's useful life must be longer than
the term of the lease.
You as the buyer must reasonably expect to make
money on the deal, and you must have some risk of losing money.
Buying property from your company at a fair price in today's
environment might turn out to be a good investment--one made even better
because of multiple tax benefits.