Buy property as an S-Corp with cash, and later sell it to myself for 30yr mortgage.

Hello,
I want to buy a condo for 300K, and pay cash for it initially. Later I want to get a standard 30yr mortgage on it, and put the cash that I initially spent back into my
personal account. Here is one solution that I am considering:
I have an S-Corporation, I am the only 100% shareholder/owner, no employees except for myself. I can loan my S-Corp 300K, have my S-Corp buy this condo. Later I can ask a bank to give me a personal 30yr mortgage to buy that condo from my S-Corp. I will have the bank pay my S-Corp the money for the condo. Later I would have my S-Corp pay me back the loan of 300K. Can this be accomplished without paying any taxes? Will this plan trigger some tax event somewhere? I suppose I would need to charge my S-Corp interest on the loaned 300K, and pay tax on that interest. Is there anything else to worry about? Is there anything illegal with my plan? If yes, how to make it legal? My goal is to be able to pay cash for the condo, but later be able to convert it into a standard 30 yr mortgage, and keep the cash except for the 20% down payment. It doesn't seem that the banks at a later time would let me convert to a standard mortgage if I pay 100% cash for the condo. At least, I am not aware of any bank product that would do it. I don't want any home equity loans with some horrible ripoff interests, just normal mortgage. My credit record is excellent. Thank you for your input.
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It's called a re-finance, and it's done all the time. See a good loan broker and he can find you a good deal. By the way, why in the world would you want to structure it this way? Stu
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I must be missing something. I paid off my house, and a couple years later financed it with great terms. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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They probably will (as a "refinance" taking additional money out), but you'll have a problem with deductibility of the interest. Seth
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First a caveat: I have no professional tax qualifications.
But, this seems needlessly complicated. I don't understand why you want to get your S-Corporation involved at all. Especially since I don't think you really have to. I'm sure that the tax pros can comment on the difficulties involved in the subsequent sale, since at that time, the value of the house would (presumably) be higher. But since it is owned not by you, but by your corporation, I doubt it would qualify for the tax-exclusion on the profit. And since you control the corporation, you would have to worry about not having an arm's length transaction (at fair market value) and running into various self-dealing rules.

OK. It is unclear to me why you would want to structure the transaction this way, but I'll take it on faith that you have a good reason. That said, it doesn't seem like there would be any problem with doing a cash-out refinance of the property at some later time. This would get you a first mortgage on the property and not a home-equity loan (which are typically second mortgages, and having a higher interest rate because they are second in line for the security). IIRC the interest rates on cash-out refinance loans are often slightly higher than on purchase loans, but I don't think the difference is very big. Don't quote me on this, but I think it's only about a 1/4 percent higher rate, if it's higher at all. Have you actually asked a bank loan officer or a mortgage broker about the process of taking out a mortgage on a home that is owned free and clear? << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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Aside from all other the legit concerns expressed by others above, you will potentially screw yourself on the homestead exemption. The laws vary, but where I live, investment property is taxed on 20% of assessed value while primary residential property is only taxed on 10%. Having your residence held in a corporation's name would double your annual property tax by nature of being an investment of the corporation. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >>
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