S-Corp, LLC, or something else?

5 Replies

I created an S Corp several years ago for a business venture that never took off. I believe the Employer Identification Number that I was assigned by the IRS is still valid. I'm new to REI and will be purchasing my first property soon. Been reading about the tax advantages of purchasing property under a corporation, and LLCs also seem to be very popular. I'll be consulting a tax advisor soon, but also wanted to get some input from the BP community. Would it be advantageous to purchase property under the S Corp? Would an LLC provide more tax advantages? Please note I am not concerned at this point with the liability aspect, or from an insolvency standpoint. Merely looking for thoughts on the best tax/financial strategy. For additional context, I'll be starting small with single-families and 2-4 unit properties, seeking to take advantage of 1031 exchanges as well. Thanks!

@Michael Thompson , Others will chime in with their druthers on the best preferred business entity structure.  From the perspective of the 1031 it is important to know 2 things.

1. Any business/corporate/taxable entity or individual may perform 1031 exchanges and take full advantage of the tax deferral of the 1031.

2. The rule that gets those who seek to bury properties within shadow and umbrella corporate structures is that whoever the tax payer is for the old property (individual, S corp, LLC, trust, etc) has to be the tax payer for the new property in a 1031 exchange. So if you use your S corp and sell property owned by the S corp then your purchase must also be in the name of the s corp if you want to use the 1031.

This usually only becomes and issue when two or more partner/members are seeking to go separate ways.  Or if financing is needed on the new property a lender will many times be more reticent to lend to a corporate structure rather than an individual.

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If you are not a flipper then you probably shouldn't put real estate in an LLC.

You need to read the debt basis rules of S corps vs Partnerships. This will help you understand.

If you do not know then you should use the SMLLC and meet with a CPA or lawyer.

Getting real estate out of an S corp can sometimes be a nightmare so be careful with that.

Apologies I mean flippers use S corps (I wrote LLCs because I think you intended to make an S election on an LLC).

Use a LLC for your rentals. Easy to handle for RE investors. PM if you need CPA RE tax advice.

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