Can a Company Buy a House? And Should It?

Companies can own residential property, a practice increasingly common for various purposes beyond traditional real estate investment. Understanding the legal and financial frameworks involved is important for any entity considering such an acquisition.

Company Structures for Property Ownership

Different business entities can legally acquire and hold title to residential property, each with distinct characteristics. A Limited Liability Company (LLC) is a popular structure for real estate ownership, operating separately from its owners. This separation shields personal assets from business liabilities, meaning only the LLC’s assets are typically at risk in a lawsuit related to the property.

S Corporations and C Corporations can also own real estate, holding property in the corporation’s name as a separate legal entity. Both corporate forms provide liability protection for shareholders, insulating personal assets from corporate debts and liabilities. Their tax treatment differs significantly, influencing their suitability for real estate.

Partnerships, including general and limited partnerships, represent another common structure for joint real estate investment. In a general partnership, all partners typically share equal responsibility and liability for the property’s debts and obligations. Limited partnerships involve a general partner who manages the property and limited partners who primarily contribute capital, with liability usually limited to their investment.

Reasons for Company Property Acquisition

Companies acquire residential property for various strategic reasons beyond simple investment. Providing housing for employees is a common motivation, especially for those on relocation or temporary assignments. Corporate housing offers benefits such as cost savings compared to extended hotel stays, flexible leasing arrangements, and fully furnished accommodations that include utilities. This setup provides a more comfortable, at-home feeling for employees, enhancing morale and productivity.

Residential properties may also serve as executive housing or corporate retreats, offering a dedicated space for company leadership or team-building activities. Beyond direct occupancy, companies might purchase residential real estate as an investment to generate rental income. This approach diversifies a company’s asset portfolio and can provide a steady revenue stream. Some companies even utilize residential properties as unique office spaces, particularly for specialized teams or creative endeavors.

Purchasing Residential Property as a Company

Acquiring residential property as a company involves distinct procedural steps compared to an individual purchase. Securing financing often requires commercial loans, which differ from traditional residential mortgages. Commercial lenders typically evaluate the financial health of the business entity, including its revenue, debt-to-income ratio, and credit history, rather than solely the personal finances of the owners.

Due diligence for a corporate buyer includes reviewing organizational documents (e.g., articles of incorporation) and ensuring proper corporate resolutions are in place. A board resolution, or similar document for an LLC, formally authorizes the company to purchase the property, specifying details like the property’s location, purchase price, and financing terms. This resolution also designates authorized signatories (e.g., president or chief financial officer) to execute all necessary agreements and documentation on behalf of the company.

Legal agreements, such as the purchase and sale agreement, will be executed in the company’s name. The company’s corporate seal might be affixed to formal documents, depending on entity type and state requirements. Title transfer involves deeding the property directly to the company, ensuring the company’s name appears on public records as the legal owner. This process helps maintain legal separation between the company and its owners, supporting the liability protection inherent in the business structure.

Tax Implications of Company-Owned Property

Owning residential property through a company carries various tax implications. Companies can deduct many operating expenses associated with the property. These typically include mortgage interest, property taxes, insurance premiums, utility costs, and expenses for maintenance and repairs. Professional fees for property management and legal services are deductible.

Depreciation is a substantial tax benefit for residential rental property. The IRS allows companies to recover the cost of the building portion of the property over its useful life, typically 27.5 years for residential rental properties using the General Depreciation System (GDS). A portion of the property’s value can be deducted from taxable income each year, reducing overall tax liability. Land is not depreciable, so only the value allocated to the building is eligible for this deduction.

Rental income from company-owned property is treated as taxable income at the corporate level. For C Corporations, this income is subject to corporate income tax. C Corporations face potential “double taxation” where profits are taxed at the corporate level, and again when distributed to shareholders as dividends. S Corporations and LLCs, if taxed as pass-through entities, avoid this double taxation, as income and losses pass through to the owners’ personal tax returns.

When a company sells residential property, capital gains tax rules apply. For C Corporations, any gain from the sale is taxed at the corporate income tax rate (currently 21% federally). For S Corporations, the gain is passed through to shareholders and reported on their personal tax returns. Depreciation recapture is an important consideration upon sale. If a property is sold for a gain after depreciation deductions, a portion of that gain (up to the amount of depreciation taken) is “recaptured” and taxed. For real estate (Section 1250 property), unrecaptured Section 1250 gain is taxed at a maximum rate of 25%. Any remaining gain beyond recaptured depreciation is taxed at applicable capital gains rates. Local property taxes are an ongoing expense, assessed by local jurisdictions based on property value.