Carrying cost treatment when no commercial rent charged between 2 S corp related parties

[Samantha]

Two FL taxpayers are shareholders in 2 LLC S corps - one a business operating out of a new commercial building and the second LLC S corp was formed solely to buy/hold the commercial building. FL is the only state which imposes sales tax on commercial rent, therefore none is being paid. (FL also doesn't require FMV rent between related parties.) I'm lost as to how to handle the 2nd S corp owning the commercial building. It sounds to me since there's no rental income, no related expenses (taxes, maintenance) can be currently deducted. Would carrying costs simply be added to basis each year until building is sold? Is depreciation also not allowable currently but reduces basis each year??

I suppose a pro forma could be run to determine the cost-benefit of charging rent, having to pay sales tax and being able to currently deduct carrying costs. But they don't have a mortgage so there's no big mortgage interest number. Would greatly appreciate some insight on whether I have a correct understanding.

[Abby Normal]

There's a tax concept that if you control the rent being paid, then it will be treated as if it was actually paid, even if no cash was exchanged.

Record the rent expense on the business and the rent income on the S corp that owns the building.

[Lee B]

The carrying costs you are referring to relates to "Investment Property".

Unfortunately your clients do not have "Investment Property"

Your clients avoidance of the FL sales tax is the classic case of "cutting off your nose",

because they will lose the deduction of all of the related expenses.