New Tax Planning Opportunity And Other Planning NewsFebruary 15, 2019
Business And Estate Planning Newsletter
Welcome back to Cunningham Dalman's Business and Estate Planning Newsletter. We strive to provide you with helpful articles and links to legal issues on topics related to business and estate planning.
On that note, if you file an annual report with the State of Michigan for your LLC or corporation, click this link to learn how to avoid a scheme to get you to pay for a document that doesn't exist.
Business Owners: Read This Article If You Own Real Estate For Your Company
By Haans Mulder
If you're a business owner and own the building or property you operate on, you should read this article closely. The new tax law established a 20% deduction for business owners. In a recent regulation, the federal government clarified that this tax benefit may also apply to the rental income that's earned from leasing property to your business. In other words, if you rent from yourself, that rent might also be eligible for the 20% deduction.
Up to this point, the standard structure of a real estate lease between entities that are owned by the same person or people has been the "triple net lease." In this type of lease, the tenant paid the taxes, utilities, as well as insurance and was responsible for the maintenance. Due to the 20% business deduction, this lease structure may no longer be the optimal from a tax standpoint. More specifically, if the owner of the real estate (i.e. the landlord) annual performs or contracts for 250 hours of service on the property, it may allow the rental income to be subject to this 20% deduction.
There are important considerations to structuring this. First, the lease must reflect that the landlord or owner of the real estate is responsible for all or a significant percentage of the maintenance. Second, the landlord must keep records of the time that's spent performing services on the property. Also, the time spent does not have to be the actual owner of the entity. It can include employees, agents, and even independent contractors. In other words, hiring someone to perform these services will qualify.
If you own a building and lease to your company, this could be an important tax benefit. If you have any questions or are interested in this planning, feel free to contact me.Contact:P. Haans Mulder, Shareholder(616) 392-1821
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