Mortgage Interest on Mobile Home

Mortgage Interest on Mobile Home

My wife and I are sole shareholders of a corporation which exists solely to hold title to a mobile home. If we wish to deduct interest from the mortgage on that mobile home from our personal income taxes, will we have to make a subchapter S election or could we simply include the mortgage interest on a personal income tax return since we are personally and solely responsible for the payment of the loan?


Let us first define what an S corporation is so that everyone will know what we are talking about, and then we will have to address a number of tax, legal, and other issues which your apparently simple question raises. An S corporation is a corporation which has a special tax status. A corporation is an entity formed under the laws of a state which, assuming it adheres to proper corporate formality, will generally insulate and protect the owners (called shareholders) from personal liability in the event of a suit or claim against the entity related to the entity's business. Thus, the reason corporations are so frequently used for business endeavors is to protect the owners from liability. There are a host of exceptions, such as for malpractice by certain licensed professionals, where you personally guarantee a contract, loan, or other arrangement, etc. In your case, since you personally guaranteed the loan, you are on the hook in full. Even for operating businesses such as a manufacturing or repair company, using the corporate form makes sense even if you have to personally guarantee a loan because it will still protect you from other claims. What is an "S" election? Corporations have historically been taxed as separate legal entities paying their own tax. Then if you as a shareholder receive a distribution from the corporation, you would then pay tax on the same income as a dividend. This is known as "double taxation" and has been a major objective for all closely-held businesses to avoid. If you pay a salary out of a closely-held corporation which is a legitimate salary, the corporation receives a deduction and thus there is only one layer of tax. The double tax situation, however, poses a host of technical and complex problems for many closely-held businesses. Historically, one of the common ways around this was to make an election to be taxed under "subchapter S of the Internal Revenue code", the so-called "S election". This in very simplified terms enables the income from the corporation to be taxed directly to the individual shareholders and not to the corporation. How does all this relate back to you and your mobile home? A mobile home which you are living in personally, should not be owned by a corporation because it is not a valid business purpose. If the corporation owns the mobile home rather than yourselves personally, you cannot deduct interest on your personal tax return since it is the corporation's deduction, not yours. Considering the description above as to why and how a corporation is used, it is unclear why you would have purchased a mobile home in a corporation or why you would have set up a corporation. There might be one twist around this. Where a corporation merely holds ##naked legal title to a property on behalf of another, that corporation is said to be a "nominee" for the actual owner. Thus, even though the name of the property is titled in the ownership of the corporation, in reality the corporation is merely just holding it on behalf of the actual owner. When a nominee arrangement is used, a nominee agreement should be signed between the parties. Your situation is confusing and seems inappropriate handled. You should really address this immediately with both an attorney that understands mobile home issues as well as a tax accountant that understands how to perhaps unwind the problems you have. Caution: The above is merely a generic answer to a question. There could be a host of additional complications, issues, or unique circumstances which have to be considered. Before addressing any issues with respect to S corporations, home ownership, etc., you should always consult with a tax adviser in your area.

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