Deducting real estate taxes

[doingthebooks]

I know that a business can deduct real estate taxes, but I have a specific question. Our small family business owns the structure that houses the business, but it does not own the land the business sits on, or any of the surrounding land. If the business pays the real estate taxes for the land, but does not own the land, are those real estate taxes a legitimate deduction on the tax return? 

It seems to be clear to me that in order to take a deduction, you have to be the owner, and it does not matter who pays the taxes. If you are not the owner, then it is not a deduction you can take. Is this correct, or is this incorrect?

[Mike9241]

I hope you have a written lease that requires you to pay the taxes.  from a tax standpoint, this is rent and should be reported as such on the tax return.  the term is ground rent. if you do not have a written document, hopefully, you have an oral agreement to pay the taxes.  if you have neither why are you paying them? if neither the business is probably not entitled to deduct the voluntary payment. it's not uncommon for businesses to pay for the construction of buildings on land they don't own (think of malls) and pay the landowner ground rent.  

[doingthebooks]

Thank you, Mike for your response. The information you provided is very helpful. 

The business we own is a small family business.

We do not live in the city limits, and all of the acreage we have is owned by the family. 

The business started years after the land was purchased.

This should answer your question as to why we are paying the taxes. It is because it is our land. The real question for me is to know with certainty how to accurately account for the taxes on our business tax return.

I know that businesses are entitled to deducting certain taxes, the real estate taxes being one of them, but in this case I felt unsure.

According to our legal documents, our business owns four structures, the structure of the business itself as well as three additional homes. We pay all of the real estate/property taxes. 

I just want to know if in our case this would be considered an expense the business has a right to deduct, or  not. I have asked 3 people at our county tax collector's office, and none of them knew the answer.  

There is no rent involved at all. 

I appreciate your time, thank you.

[Mike9241]

what type of entity is the grocery business? S-Corp, C-Corp, partnership, LLC, trust

You say the family owns the land. how is it titled?   

for example, the land may be owned by a limited partnership while the grocery business is owned by an S-Corp whose stockholders are the same as the partners in the limited partnership. from an income tax standpoint, these are separate tax entities.

you see if matters if different tax entities own the land and the business. the IRS could impute rental income to the entity owning the land based on what the fair rental value would be and maybe give the grocery business a related tax deduction but this could seriously impact the individuals involved.

on the other hand, if it's the same tax entity that owns the land and business, the business would be entitled to deduct the taxes. 

According to our legal documents, our business owns four structures, the structure of the business itself as

well as three additional homes. We pay all of the real estate/property taxes.

this is a separate issue.  if the grocery business owns the homes are they being rented? this would require separate reporting by the grocery business and if used by family members could create tax issues on the deductibility of real estate taxes associated with the land they occupy.

I'm not a lawyer, so this could be wrong. once you erect a permanent structure on land it's the landowner that has full control over the structure. without a lease or similar document, the landowner could tell you to remove the structure and if not go to court to have you tear it down.  what you have is a leasehold improvement.

 you have a complicated situation for which you should seek legal advice.