Q: In a recent article, you discussed choosing an S corporation versus a limited liability company (LLC) for holding real estate.
While I agree with much of your response, I have to bring up a key difference between an LLC and an S corporation. An S corporation is not a taxable entity under most circumstances. Instead, the S corporation's income "flows" to the taxpayer's personal income tax return without incurring the dreaded "self-employment" taxes.
There are some tax consequences that the reader should discuss fully with his tax adviser and explore the pros and cons of his own tax situation.
A: Thanks for your comment. According to the IRS, "S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income."
Let me also clarify another point: According to the tax experts I have spoken with, even if you use an S corporation, if the income from the S Corporation is attributable to work performed by an individual, you would still be responsible for self-employment taxes.
That is to say, if an individual manages a property and part or all of the income from that property is attributable to the work put in by that individual, some of that income may be taxed as self-employment income even if the income flows through the corporation. You can't set up an S corporation solely to avoid paying self-employment taxes.
To read more, go to this link at IRS.gov: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html
Q: I am aware that nonresident aliens are not eligible for the $8,000 first time home buyer tax credit.
I am a resident alien (green card holder) but do not have enough cash or the possibility of qualifying for a mortgage. My friend who lives abroad (a nonresident alien) has suggested we buy a home together for cash so I can take advantage of the tax credit. The property would be jointly owned and it would be my primary residence but my friend will not live there, it will just be an investment for him.
I assume that to take advantage of the tax credit my name has to be on the title but do we need to specify what share each one has. And would I qualify for the tax credit only on my share? Would I qualify for the entire $8,000 or a lesser amount?
A: The good news is that you should be entitled to get the first time home buyer tax credit of $8,000 for your home purchase. While your friend would not qualify and could not get the tax credit, you do qualify for the credit.
To qualify for the first time home buyer tax credit, you can't be a nonresident alien. That is to say you must be legally in the United States with the right to reside here. So if you were a tourist coming for a visit, you would not qualify for the tax credit. You would also not qualify for the tax credit if you were undocumented and living in the United States illegally. You also must not have owned a home during the last three years, and your modified adjusted gross income must be less than $75,000 per year.
In your circumstances, your friend could be treated as a parent or other person that was assisting you in your purchase of the home. But your purchase of the home must be for your personal use and it must become your personal and primary residence and must continue to be your primary residence for 36 months following your purchase.
One additional important item for you: the home you buy must be located in the United States. You won't qualify for the tax credit on home purchases outside of the United States.
The IRS gives several good examples on their Web site that help prospective home buyers. The first time home buyer tax credit ends at the end of the day on November 30, 2009. For more information, go to www.IRS.gov.
(Ilyce R. Glink's latest eBooks are "Save Your House From Foreclosure" and "Divorce and Your Finances," which can be purchased at www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST or contact her through her Web site, www.thinkglink.com.)
While I agree with much of your response, I have to bring up a key difference between an LLC and an S corporation. An S corporation is not a taxable entity under most circumstances. Instead, the S corporation's income "flows" to the taxpayer's personal income tax return without incurring the dreaded "self-employment" taxes.
There are some tax consequences that the reader should discuss fully with his tax adviser and explore the pros and cons of his own tax situation.
A: Thanks for your comment. According to the IRS, "S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income."
Let me also clarify another point: According to the tax experts I have spoken with, even if you use an S corporation, if the income from the S Corporation is attributable to work performed by an individual, you would still be responsible for self-employment taxes.
That is to say, if an individual manages a property and part or all of the income from that property is attributable to the work put in by that individual, some of that income may be taxed as self-employment income even if the income flows through the corporation. You can't set up an S corporation solely to avoid paying self-employment taxes.
To read more, go to this link at IRS.gov: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html
Q: I am aware that nonresident aliens are not eligible for the $8,000 first time home buyer tax credit.
I am a resident alien (green card holder) but do not have enough cash or the possibility of qualifying for a mortgage. My friend who lives abroad (a nonresident alien) has suggested we buy a home together for cash so I can take advantage of the tax credit. The property would be jointly owned and it would be my primary residence but my friend will not live there, it will just be an investment for him.
I assume that to take advantage of the tax credit my name has to be on the title but do we need to specify what share each one has. And would I qualify for the tax credit only on my share? Would I qualify for the entire $8,000 or a lesser amount?
A: The good news is that you should be entitled to get the first time home buyer tax credit of $8,000 for your home purchase. While your friend would not qualify and could not get the tax credit, you do qualify for the credit.
To qualify for the first time home buyer tax credit, you can't be a nonresident alien. That is to say you must be legally in the United States with the right to reside here. So if you were a tourist coming for a visit, you would not qualify for the tax credit. You would also not qualify for the tax credit if you were undocumented and living in the United States illegally. You also must not have owned a home during the last three years, and your modified adjusted gross income must be less than $75,000 per year.
In your circumstances, your friend could be treated as a parent or other person that was assisting you in your purchase of the home. But your purchase of the home must be for your personal use and it must become your personal and primary residence and must continue to be your primary residence for 36 months following your purchase.
One additional important item for you: the home you buy must be located in the United States. You won't qualify for the tax credit on home purchases outside of the United States.
The IRS gives several good examples on their Web site that help prospective home buyers. The first time home buyer tax credit ends at the end of the day on November 30, 2009. For more information, go to www.IRS.gov.
(Ilyce R. Glink's latest eBooks are "Save Your House From Foreclosure" and "Divorce and Your Finances," which can be purchased at www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST or contact her through her Web site, www.thinkglink.com.)
