3 Tax Benefits of Holding Real Estate Using an S Corp . -- Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

Generally, S Corps. Are NOT a good way to hold real estate assets, however, there are some exceptions.

1. Separate tax return could come handy in certain situation. In certain jurisdiction, the process and outcome of some property tax appeals, could hinge on how a rental property's operations are reflected from a tax reporting perspective. For owners owning several properties, having separate tax returns (i.e. Form 1120S) could help them get an outcome that would potentially be more unbiased, than having to show schedules EST, which would their other rental properties.

2. Using QSSS to cut taxes through transfer pricing. This may be an attractive option for taxpayers having properties generating large tax losses, which may be absorbed by a profitable business and/or other rental properties reporting taxable income.

3. More able to shift tax liability to different jurisdiction and/or tax year.  This may be a particularly attractive option, for taxpayers who are residents and/or own vacation homes in low tax states, and have rental income, in high tax states.  By having certain functions of their business, such as, invoicing, corporate meetings, tax preparation, landlord tenant correspondence, lease preparation, online advertising to lease vacant units, bank accounts and even certain storage of things a rental property corporation may need, at the low tax state, they may legitimately, be able to claim that a bigger at rental property income, should be taxed at the low tax state.  This technique tends to work exceptionally well, when paired with S Corp Subsidiaries (i.e. QSSS). An added boost to taxpayer's argument could be the incorporation of underlying entity making rhea S Corp election, be the low tax state.

 

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