Will C Corporation Split-Interests Make a Comeback
C corporation owners face a double tax on their earnings. However, with higher interest rates, the use of a split-interest purchase may make sense for land purchases.
A C corporation owner faces an income tax on the corporation’s earnings at 21% (plus state income tax if applicable) plus when the earnings are finally distributed to the owners, the owners will pay “capital gains” tax on those dividends.
The use of split-interest purchase of farmland was a popular choice when interest rates were higher. However, over the last 15 years, the use of a split-interest arrangement typically did not work well due to lower rates.
Now that interest rates are approaching 6% or higher, a split-interest purchase can be a way of getting earnings out of a corporation with no dividend tax.