Can I Purchase a Home Through My Business?

It is possible for a business to purchase a home, but the practicality of this action depends on the property’s intended use. This decision carries legal, financial, and tax implications that change based on whether the home will serve as a personal residence, an investment, or a facility for business operations.

Holding a Personal Residence in a Business Name

Using a business to hold title to a personal residence is generally not advisable due to tax drawbacks. When a business owner lives in a company-owned home, the property’s fair market rental value is often treated as taxable income. For a C-corporation, this is a “constructive dividend,” leading to double taxation. For pass-through entities like S-corporations or LLCs, the value is usually considered additional compensation subject to income and payroll taxes.

A major financial disadvantage is the forfeiture of the capital gains exclusion. This provision allows an individual to exclude up to $250,000 of capital gain ($500,000 for married couples) from the sale of their principal residence, provided they owned and lived in the home for at least two of the five years before the sale. When a business owns the property, this exclusion is lost.

The commingling of personal and business assets can also lead to “piercing the corporate veil.” This legal doctrine allows courts to set aside liability protection, making owners personally liable for company debts. If the corporation is deemed an “alter ego” of the owner and corporate formalities were not respected, a creditor could access the owner’s personal assets.

Using a Business to Hold Investment Property

The most common reason for a business to own residential property is for investment, specifically for renting to third-party tenants. Structuring a rental property under a business entity, such as a Limited Liability Company (LLC), offers liability protection. This legal separation isolates risks associated with the investment property from the owner’s personal assets.

Operating a rental property through a business allows for the deduction of many expenses against rental income, which reduces the net taxable income. Deductible expenses include:

• Mortgage interest
• Property taxes
• Insurance premiums
• Repairs and maintenance
• Property management fees
• Advertising costs
• Utilities paid by the landlord

A non-cash deduction available to business-owned rental properties is depreciation. The IRS allows owners to deduct a portion of the property’s cost basis, excluding land value, over 27.5 years for residential rentals. Certain improvements may qualify for bonus depreciation, which allows a large portion of the cost to be deducted immediately. The rate for 2025 is 40%, dropping to 20% in 2026 and eliminated in 2027.

The net income or loss from the rental property flows through to the owners’ personal tax returns. This pass-through taxation avoids the double taxation associated with C-corporations and allows owners to potentially benefit from the Qualified Business Income (QBI) deduction. This permits a deduction of up to 20% of qualified rental income but is scheduled to expire after 2025. To be eligible, the rental activity must qualify as a trade or business, which has specific IRS requirements.

Acquiring Property for Direct Business Operations

A business may purchase a residential property for direct use in its operations, such as a corporate office, a guesthouse for clients, or lodging for employees. In this context, the property is not generating rental income but is serving a specific business function. The property’s use must be integral to the company’s trade or business activities.

When a property is used as lodging for employees, the value may be a non-taxable benefit if it meets the “convenience of the employer” test. This test requires that the lodging is furnished on the business premises, is for the employer’s convenience, and is a condition of employment. An example is housing for an on-site property manager.

The IRS requires documentation to prove a property’s business use. The company must maintain records detailing who uses the property, the specific business activities conducted, and the dates of use. For client or employee lodging, this might involve logs, meeting agendas, or employment contracts.

Expenses for a property used in business operations are deducted like any other commercial facility. Costs such as utilities, insurance, repairs, and property taxes are treated as ordinary business expenses. The company can also claim depreciation on the structure, reducing the company’s overall taxable income.

Financing and Ownership Mechanics

Purchasing a property through a business requires a commercial real estate loan. Lenders evaluate these loans based on the financial health and creditworthiness of the business itself. They will scrutinize the company’s revenue, cash flow, and business credit history to assess its ability to repay the debt.

Commercial loans typically have less favorable terms compared to residential mortgages. Borrowers should expect to make a larger down payment, often 20% to 35%, and face higher interest rates. Loan terms are also shorter, commonly ranging from five to 20 years.

Another difference is that commercial loans may include a prepayment penalty, which is a fee charged if the loan is paid off early. Lenders also often require the business owner to provide a personal guarantee. This means their personal assets could be at risk if the business defaults on the loan.

When a business purchases property, the title is held in the name of the legal entity, such as “XYZ Holdings, LLC.” The entity’s name appears on the deed and all official property records. This formal ownership structure reinforces the separation between business and personal assets.