Using your healthcare S-corp to escape the vice of the SALT deduction cap

[LADoc00]

Im in California and getting hammered by the SALT deduction cap.

I also own several properties.

PLAN: Every 2 years sell one property to my S-corp to take advantage of the $500,000 exclusion on capital gains for selling your primary residence. Beyond 500K in instant tax-free income, I now have retained possession of the asset while making the entire carrying cost an expense that isnt beholden to the SALT deduction cap.

Example. I have $300,000 in a bank account for an S-corp that I am sole shareholder of. I take out a loan to buy the property on behalf of the S-corporation. The paper transactional price would be the assessed value of the home, which in my area is peak.

Given my expenses for the transaction is paid solely by the corporate side and includes loan origination costs, deed and title transfer again I personally pay nothing.

The sale for example would be registered as $1,200,000 compatible with surrounding recent comps and the loan would be for the $900,000 remaining on the balance at a 30 year fixed jumbo rate of around 3.00% APR.

1.) On my individual returns I book a $500,000 exclusion given I bought the home for roughly $700,000 5 years ago. I received in cash the entire $1,200,000 tax free.
2.) In addition, the $300,000 my S-corp came up with to buy the property is extinguished as income for this tax year and does not appear as pass through income on my personal returns.
3.) Even better, going forward I still own the home but the carrying costs of the property including the FULL property taxes, mortgage interest and upkeep/utilities are completely expenseable and not subject to the SALT limits individuals have now.
4.) The property can essentially pay for itself by being rented, which in my area would be around $5-6000/mo with a total monthly loan cost of around ~$4900/mo. And if there is a rental gap, the S-corp is bearing all the holding costs not me as an individual.

I dont see a downside whatsoever in this plan so if anyone with more tax skillz than me sees one, please post.

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[The White Coat Investor]

You would no longer qualify for any additional waiver of capital gains, you now own the property in an S Corp and have that hassle and perhaps a government entity such as the IRS might view it as a fraudulent.

2) I don't understand why your S corp taking out a loan would be considered income. Loans aren't income. Nor would it be income if you borrowed it personally and contributed it to your S Corp.
3) There's a reason most real estate investors don't own investment properties in an S Corp. Owning Rentals in An S Corporation Might Be A Mistake | Blog.

 

[LADoc00]

You would no longer qualify for any additional waiver of capital gains, you now own the property in an S Corp and have that hassle and perhaps a government entity such as the IRS might view it as a fraudulent.

2) I don't understand why your S corp taking out a loan would be considered income. Loans aren't income. Nor would it be income if you borrowed it personally and contributed it to your S Corp.
3) There's a reason most real estate investors don't own investment properties in an S Corp. Owning Rentals in An S Corporation Might Be A Mistake | Blog.

2.) yah I probably wasnt clear, I didnt want this accumulated bank balance to become classified as pass through income, hence why I came up with the plan to begin with. I dont have equipment worth buying now, I dont have commercial property worth getting so Im stuck taking this lump sum as a pass through income and seeing half eradicated by taxes...

3.) Yah the tax attorneys I spoke with yesterday said the same thing: dont put property into a S-corp. Lots of conflicting info on the internet with some saying medical S-corps should have property, but I understand now why you wouldnt do that.

...One step forward, 2 steps back. Work your butt off to grow a practice and its eaten away by taxes. The financial treadmill is a doomed path where you only die tired.