1120 Asset

[KaleyR]

I have a client who files an 1120. They have an asset that I need to list for cost basis, but not depreciate out. How do I do this. Asked another accountant and their system offers like a memo line. Can someone please help me! 

Its a house bought by the corporation, but is used as his personal residence at this time. 

[BobKamman]

No such animal as personal use of corporate asset.  The house is being used as compensation for his services -- it should be depreciated, and the value of the housing added to his W-2 unless there is a business reason for his living there.  Or, he can rent it from the corporation, which also makes it a business asset.  

[Just-Lisa-Now-]

I dont work with corps at all, but isnt it a bad move to put your house in a corporation like that? 

You lose the 121 personal residence exclusion when its sold, dont you?

[sjrcpa]

@Just-Lisa-Now-  Yes to both of your questions.

[sjrcpa]

I'm not sure I'd depreciate it. It is not used in the trade or business of the corporation.

Does ProSeries have a method/treatment for land? Lacerte has one. If we choose it no depreciation is calculated.

[dascpa]

I agree with the two posts in reply to your question, but they did not answer your question.  Can a corporation own a house? Yes.  Is that a wise idea?  Yes, no and maybe.  Their feeling most likely is it's cheaper than paying hotel or other fees.  We do see this with certain businesses that need overnight housing for traveling staff or consultants.  Does it create other tax issues like taxable fringe benefits, etc.?  Most likely yes.  But to answer your question - it could be classified as an Other Asset (long-term asset) and not put on the Fixed Asset schedules.  There will be others who disagree with this and state if it's used in the business it must be depreciated.  They have justification in that answer too.  We all would need to know more about the situation so further research could be done.

[Just-Lisa-Now-]

Yes, it looks like we can add in an asset with a Code X for Non depreciated asset. 

It doesnt let you input a a date for acquired or put in service though, so its not a great way to keep track for later down the line.

Alternately, you could give it .01% business use, the dep computed would be so low it probably wouldnt matter.

[BobKamman]

@dascpa "We all would need to know more about the situation so further research could be done."

I don't need to know more.  The corporation is owned by someone who thinks rules are made to be broken.  But, have they figured out what happens when the house is sold at a gain?  Or distributed to the shareholder as a dividend?  And, do they plan on reducing basis then, by depreciation "allowed or allowable?"  

[dascpa]

I will not disagree since the owner is using it as his personal residence.  But that could be - for now.  I had two clients who bought homes.  One, a scientist who regularly had other 1099-scientists come to their location for one or two night stays.  After spending over $100k in hotel costs he found it cheaper to purchase a residence.  Yes, that was a depreciated business asset.  The other was a small airline who also spent tons on housing crew so they purchased a residence.  So on the surface Bob, I agree with you.  But the situation as it is now could be (doubtful, maybe, who knows) be temporary and the real reason will come out.

[KaleyR]

On ProSeries, it does not give X as an option for the 1120, like on the 1040. 

[KaleyR]

My understanding of the situation is that it is being set up that way for reasons when he is gone and the corp is divided up to his heirs. They will inherit all the stocks in it. It is understood that he loses deductions if it were sold before then. 

I have been asking questions,but can't seem to get the answers needed. 

[Just-Lisa-Now-]

Ahh, ok.  Will it take .01% as business use in the top right corner of the asset entry worksheet?

[sjrcpa]

Has he ever heard of a will?

[qbteachmt]

"They will inherit all the stocks in it. It is understood that he loses deductions if it were sold before then."

Uh, nope.

If it helps, remember that a C Corp is its own entity and is separate from the People that are shareholders in that corporation. No one gets the "deduction" or exemption for that house, because it is never sold before or after "then." It is owned by the corporation and when it gets sold, that also is by the corporation. Humans live and die all the time, and the corporation still owns that house separately.

Dispersing shares of a corporation upon death of a shareholder doesn't change anything about the corporation or its assets or operations. When you die, your Ford or GM stock passes on to your heirs. Ford and GM are not impacted by your death; they just change the name of who owns those shares.

The point here is you cannot take personal advantage of corporate assets without being taxed on the value of that benefit. If there are other shareholders, that most likely also set up an inequitable situation. You cannot shift personal life activities into the corporation for convenience, estate planning, thinking that makes them business expense, etc, which are often the reasonings for doing this. And it's wrong.

Your question is for a scenario that makes no sense. They need a Trust, not a Corporation, for that personal residence. Time to talk to a lawyer.

[BobKamman]

Is everyone sure this is not a "personal holding company"?  Does anyone know how those are taxed?

Make sure you have a nice outfit available.  You may have to wear it to court, as a witness to explain how this mess was allowed to happen.  Well, if not as a witness, maybe as a defendant.  

[sjrcpa]

I started wondering, too when OP said "They will inherit all the stocks in it."

@KaleyR  Does this corporation own stock in other companies? Does this corporation have an actual business activity?

[KaleyR]

Sounds like this is one I don't want to get involved with and they can go somewhere else to have this done.