Hello, i am new to real estate investing but I already have an s corporation for another business. I am looking to purchasing a property with investors and trying to figure out how to structure it so that the corporation can receive the tax benefits of managing the property. I understand that a corporation can be general partner in an LLP but is it possible to have the property by on the books of the corporation and issue distributions to the investors through the corporation? i am planning on talking to real estate lawyer and real estate cpa but wanted to see if there were any thoughts from the forum. thanks!
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Whatever you do, do NOT put a property in an S corp. There are very bad consequences for doing so. In many cases a simple LLC with an operating agreement can handle what you are trying to achieve. Best of luck!
Accountant · NH · Member since 2019 · 269 posts · 288 votes
2y
Agreed with @Account Closed - putting real estate, or a real estate partnership - within an S-Corporation provides effectively no value, while creating significant headaches and tax consequences.
The only real benefit left for an S-Corp is partial shielding of employment taxes - but a rental property already doesn't produce any self-employment taxes, so the one benefit already doesn't apply to the rental.
Then you have problems with not getting basis in the debt of the property, having a lack of flexibility on future structure, issues with distributions in excess of basis...just nothing about it is good.
If the Partnership hires a property manager, and that property manager ends up being your S-Corp - great, now you are perhaps better managing your exposure to self-employment income as a result of these property management fees. This is different than the carried interest.