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Who Should Buy the New Warehouse Building

Caroline is the sole shareholder of Lincoln Corporation. Lincoln's sales have doubled in the last four years, and Caroline has determined that the business needs a new warehouse. Caroline has asked your advice as to whether she should:

(1) Have the corporation acquire the warehouse or
(2) Acquire the warehouse herself and rent it to the corporation.

What are the relevant tax issues you will discuss with Caroline?

Solution Preview

It is a very bad idea to put an appreciating asset inside a corporation. The major problem is that the gain on sale of the building by the corporation would be taxed at ordinary corporate rates. There are no capital gain relief measures for corporations.

A second bad reason is that any dividends paid out to shareholders after sale of the building will be ...

Solution Summary

This solution presents five arguments to support the conclusion about whether the individual or the corporation should own the new warehouse building. The discussion includes tax effects, flexibility and future sale of the property.This is all completed in 230 words.