Question

Joel is the sole shareholder of Manatee Corporation, a C corporation. Because Manatee’s sales have increased significantly over the last several years, Joel has determined that the corporation needs a new distribution warehouse. Joel has asked your advice as to whether (1) Manatee should purchase the warehouse or (2) he should purchase the warehouse and lease it to Manatee. What relevant tax issues will you discuss with Joel?

Answer 1

Answer:

If Joel purchases the warehouse, he can rent it to the corporation and charge the highest possible rent within reasonable terms. Joel can avoid double taxation and the corporation will be able to deduct rent expense.

Joel is also able to deduct depreciation expenses, real estate taxes, and other costs from his passive income.

As an individual, Joel is taxed differently for capital gains in case he sells the warehouse, and that rate is generally lower than corporate tax rates.