C-Corp holding LLC's that Hold Property

7 Replies

Will be purchasing Ohio real estate for rentals and flips under LLC's. Planning to use a C-Corp to hold these LLC's. Can I use a C-Corp registered in a different state with better taxes, or must I use a C-Corp registered in Ohio? Other insights along this line would also be appreciated.

@Henry Der you need to get some legal and accounting advice.  Holding property in a C-corp is generally considered a terrible way to title property. 

A single member LLC is considered a disregarded entity. The IRS treats the LLC as if it doesn't exist. If the C-Corp is the only owner of the LLC then essentially the C-Corp owns the property in the IRS' eyes. So you would lose the advantages of an LLC and add the disadvantages of a C-Corp.

i don't know what advantage you think you might gain with this structure but it will probably not do what you expect.

Thanks Ned. Here's a bit more background and thoughts... 2 Canadian entities would own shares in the US C-Corp. Choose a 0% state tax like Nevada for the C-Corp - not sure if this is the best state? The purpose of the LLC would be to hold groups of properties to limit liabilities. Example, 5 LLC's holding 10 properties each, held by the C-Corp. Then corporate tax would be only the federal component of 21% max. Funds would be extracted by active consultatoin fees charged by the Canadian entitie(s), and taken out by dividends.

Considered a limited partnership for cleaner flow through pruposes, but was told that it is more difficult to get active consultation fees out of it and there is a withholding charge that could take up to a year to get back out to the Canadian entities.

Your feedback is appreciated.

@Henry Der now you have added the complexity of Canadian taxes. That is far out of my league to comment.  However If I understand you properly you are still using a US C-corp to hold prperty. That is a very bad idea. A CPA can explain the disadvantages.

I will say that in MD and I suspect in other states when an out of state company sells a property, they withhold like 7% of the proceeds. That is not 7% of the profit but 7% of the total amount given to the seller.

Hmm... the CPA (US/CAN qualified) I discussed with recommended this structure...  taxes are sooo confusing as there seems to be many opinions out there, even among the professionals.  The overall recommendations out there on the net seem to recommend Limited Partnerships for Canadians holding real estate in the US as this is a flow through structure, however, LP's are more expensive to set up and one CPA commented he did not prefer LP's as it is easier to get $ out of a C-Corp under the guise of management fees.

Curious - what structure do you use/recommend for your real estate holdings/rents/flips?  Maybe there is something I can glean from that.

Thanks!

@Henry Der

I would sit down with a Canadian accountant who has cross border expertise to iron out the ownership structure before you start purchasing.

From reading your above posts, I would see the U.S.A. C-Corp as unnecessary and not a tax advantage (but I'm a business owner and not an accountant).   I would ask your accountant about having your two existing(?) Canadian entities jointly own a third CCPC.  This third Canadian company would then be the 100% parent of any U.S.A. entity formed.   If you and your partner do not already have existing Canadian corporations, you might consider holding {separate} series of shares in this company directly.

South of the 49th, there is no reason you cannot use an LLC, provided it elects to be taxed as a corporation. The LLC would then pay U.S.A. taxes at the appropriate corporate rate (which the White House recently lowered). Since this LLC (or LLC's if you create more than one) would be a 100% child subsidiary of your jointly held Canadian corporation, retained earnings in the U.S.A. entity can be repatriated (on your schedule) to the parent while attracting little to no additional taxation from the CRA. When you payout these funds from the Canadian corporation to you (the shareholder) regular dividend taxes will be applicable in your hands.

Once again.  Spend a few hundred to sit down with an accountant and attorney with cross-boarder business experience before you set-up your ownership structure and go shopping.

After more research, seems like this is a reasonable scenario:

Myself and my corporation (both Canadian) will be shareholders in a US C-Corp. This US C-Corp will hold several US LLC's. the LLC's will hold 5 to 10 properties each. The LLC's are just to contain and limit access to only that group of properties in the event of attack/lawsuits - rather than attack the C-Corp directly.

With a C-Corp, there is minimal witholding tax per the Canada/US tax treaty.  5% against dividends to individuals, 15% to corporations.  Typically, the Canadian tax will be greater than this and you can get it back with a foreign tax credit filing - so you are NOT double taxed.

You can also charge active management fees from the Canadian corp against the C-Corp and withdraw funds that way.

 Considered using a limited partnership to flow through the earnings directly to the Canadian shareholders - very good idea, but there is a  witholding tax of around 39%, which could take up to a year to get back - too long for real estate business.

My last question is where to register the C-Corp, if you are buying Ohio property?  Some have said Wyoming, for no state tax reasons, but I understand this doesn't matter as you will have to pay taxes to Ohio regardless.  So, is there any real advantage of registering a C-Corp in another state other than where your real estate holdings will likely to be?

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