S-Corp Contractor builds his own home

chapguy19

Doesn't the above client have to declare the basis of his new home as income since he will put his name on the title?

Or is it just a distribution to him.

He is the sole shareholder.

Thanks in advance, Christopher

IRonMaN

Income to him, a distribution, a loan, anything that prevents the costs from being deducted as a business expense.

Slava Ukraini!

chapguy19

What are the credits and debits, so he doesn't have a tax liability.

? Credit his home on the P&L or Balance sheet and debit Distributions?

At some point his new home could be an asset of the S-Corp.

Thanks, C

IRonMaN

"At some point his new home could be an asset of the S-Corp."

How and/or why would his personal home become an asset of the corporation?

Slava Ukraini!

strongsilence

Real estate inside of an S Corp triggers taxable gain if he distributes it. What is his long-term intent?

abctax55

So.... assuming that is possible (S-Corp asset but he lives in it 😉 ) would the value of the personal use get added to his W-2 ???

HumanKind... Be Both

Accountant-Man

I bet this guy doesn't pay himself a salary. That's just a vibe I get.

** I'm still a champion... of the world! Even without The Lounge.

chapguy19

Just to do the accounting correctly.

As he accumulates expenses to the building, these costs would increase his asset "Personal Home".

Then when he transfers it to his name:

Credit Personal Home
Debit Distribution (or Wages or what?)

sjrcpa

"

Debit Distribution (or Wages or what?)"

That is the question. Could also be loan to shareholder. What is shareholder's intent?

And a distribution of property is done at Fair Market Value, not cost basis. I think wages paid in other than cash also use value.

The more I know the more I don’t know.

IRonMaN

Stupid question, but I get at least one per week. Is the main source of revenue for the corporation building homes?

Slava Ukraini!

qbteachmt

"since he will put his name on the title?"

"At some point his new home could be an asset of the S-Corp."

Well, which is it? Holding real estate in an S Corp is the worst way to own a property. If it is his own residence, why are you/he bringing the S Corp into the loop for ownership?

"Credit his home on the P&L or Balance sheet and debit Distributions?"

Nothing hits the P&L.

"As he accumulates expenses to the building, these costs would increase his asset "Personal Home"."

It's not his asset if you are entering this in the S Corp and he isn't paying for it personally. An S Corp doesn't have a Personal Residence. You seem to be trying to commingle everything in error. Either it is a business project, or it's personal and should not run through the S Corp at all. In which case, worker comp would like to have a meeting.

The costs accumulate in Construction in Progress, an asset. Or, everything spent is a loan to him, that is an asset as Loan to Shareholder. That will include land, labor, materials, subs, architect, engineering, permits, insurance, anything related to the project. If he is working under a construction loan, the interest that also is not expense.

Credit bank or credit card or AP, Debit instead of Expense is now Debit to this accumulator account.

If anyone is taking out a mortgage, who will that be?

"so he doesn't have a tax liability"

It's a pass through entity. You can't expect this project to throw them into loss. And you don't know this until the project is complete, the accounts are settled, you compare to his basis in the entity, if there are still any debts on the books for the project, what is in retained earnings, are you treating it as loan or as distribution, etc. Tax liability is the final result, not the upfront concern.

*******************************
Don't yell at us; we're volunteers

View solution in original post

chapguy19

I am trying to be too cute.

Just going to dump all of the expenses into Distributions.

Will he have tax liability when he assumes the house at less than FMV?

Thanks, Christopher

BobKamman

Is a contractor who builds custom homes, allowed a model to show prospective customers? Is he prohibited from living in it, while he uses it for that purpose? Does it make a difference if his office takes up half the floor space? I'm looking for some more facts and circumstances.

sjrcpa

If you are treating expenses as incurred as distributions I don't think there is a problem. It's the same as if he took cash distributions and used the money to pay to build the house.

But, who owns the land?

Are you including all expenses such as payroll?

The more I know the more I don’t know.