Discussion:LLC vs S Corp in R.E.
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Discussion Forum Index --> Tax Questions --> LLC vs S Corp in R.E.
Analysisinfs (talk|edits) said: | 11 July 2006 |
| What are the advantages of an entity to select LLC over an S Corp, if the entity is in Real Estate industry?
Thank you! | |
| July 11, 2006 | |
| It all comes down to reasonable comp issues, and whether you feel like you can beat the SS ceiling a bit until or unless things change. Don't be buying any RE inside a corp. tho'. Reserve that for your LLC/1065's.. | |
Mtmckeecpa (talk|edits) said: | 11 July 2006 |
| I know some who have S corps that do lots of RE flips: buy, rehab, sell, pay some in "reasonable comp" and distribute the rest.
Generally, I would not never buy and hold RE in a Corp C or S. | |
Death&Taxes (talk|edits) said: | 11 July 2006 |
| I have one client, a New Jersey resident, but whose businesses and properties are in Pennsylvania, who insists on using an LLC, one person, then electing S Corp status. He is one of those know-it-all clients. | |
Mtmckeecpa (talk|edits) said: | 11 July 2006 |
| Dea,
It will catch up with him one day, remember though what Ann Landers use to say, "Never say 'I told you so'". | |
| July 11, 2006 | |
| Good point MTM, that's what I meant and you knew it...thanks.
And yeah, D&T, he'll be hosed one day. Hosed. And blame you I bet. Run for the hills after you extract all his cash. | |
Analysisinfs (talk|edits) said: | 11 July 2006 |
| Thank you for your inputs. However, I have yet to understand a reason for justifying LLC over S Corp. for a Real Estate activity.
Is the reason "reasonable compensation" paid to shareholders in an S Corp. only? | |
| 11 July 2006 | |
| Other possible advantages of LLC over S-Corp:
1) Can have non-pro rata distributions relative to equity interests. Can allocate profits and losses in a non-proportionate manner. 2) Use of borrowed money to increase partner's basis. 3) Possibly - state of incorporation may impose an entity level tax on S-corp but not on LLC. (For example - Massachusetts - S-Corp's general pay excise tax while LLC's do not) 4) This one probably applies less in terms of flipping real estate, but if you're talking about holding depreciable real estate in the entity, definately go for LLC. Distribution of appreciated property from S-Corp to shareholders triggers entity level capital gain (which flows through to shareholders), but not with LLC. Just some ideas. | |
Analysisinfs (talk|edits) said: | 11 July 2006 |
| MSTguy:
In your point 4, you explain how an S Corp. would report a gain on a depreciated property upon its ditribution. How does LLC report it if not through its own K-1 schedule onto its members? | |
| July 12, 2006 | |
| And many bad things happen when RE needs to come out of a corp. See other threads on the topic, one just yesterday. | |
| 12 July 2006 | |
| See the page Real Estate in a C Corporation which summarizes this topic and provides links to previous discussions. This page can also be accessed by selecting Business from the tabs on the Main Page, then looking in the C Corporation section.
| |
Analysisinfs (talk|edits) said: | 12 July 2006 |
| Thank you very much Tdoyle. I took your advice. I am now more informed and for that I thank you again. | |
Jasonannalynn (talk|edits) said: | 31 March 2007 |
| So I am new to this forum but so glad that I found it.
I have a client that seems to have gotten bad advice and formed an LLC and elected to be taxed as an S Corp. He flips houses. Where do I report this acitivity for the S corp? Also second question is, where do I report the activity on his personal return. He flipped some of the houses in his individual name? This is his first year as an elected S Corp. Can he change tax election with the IRS and be an LLC partnership for tax purposes? | |
Mtmckeecpa (talk|edits) said: | 31 March 2007 |
| Jason,
The S corp will issue a k-1 to your client, showing profit/loss...this will flow to the 1040. Remember your client should also pay herself a "reasonable" wage from the S corp...file quarterly forms, etc... Sounds like the individual flips will go to Sch C... I see nothing wrong with flipping in an S corp...just remember to pay a reasonable wage and pass out the rest as a distribution not subject to FICA. Most folk here would advise against long term holding of real estate in a C or S corp. | |
Jasonannalynn (talk|edits) said: | 31 March 2007 |
| MtmckeeCPA,
Thank you for your guidance. Undestanding that it will flow to the K-1 for the S corp. I was wondering what form I fill out in the S Corp to get it to the K-1... I saw form 4797; Sale of Business Property. Should it be this form or something different. | |
| 31 March 2007 | |
| There have been many discussions about pros and cons of choosing entity types. Does anyone have a suggested reference that discusses this well?
I was particularly interested in point 4 from MSTguy, but I would mostly like to do some in-depth reading on the topic. I have a couple of books that aren't very good, so I'd like to know of ones that are good. | |
Jasonannalynn (talk|edits) said: | 31 March 2007 |
| MtmckeeCPA,
Thank you for your guidance. Undestanding that it will flow to the K-1 for the S corp. I was wondering what form I fill out in the S Corp to get it to the K-1... I saw form 4797; Sale of Business Property. Should it be this form or something different. | |
| 31 March 2007 | |
| MSTguy - Ma has an annual filing of $500.00 for LLC's payable to the Secretary of State.
Re: Corp's - min. excise tax of $456.00 plus annual report filing fee of $125.00 to Sectetary of State. | |
