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Protecting Your Bottom Line: The Best Business Structure For Your Real Estate Investment Is…

Interested in purchasing real estate for investment purposes?

As the real estate market has cooled off in many parts of the country, the timing may be right for some investors to purchase some property for the long run.

But taxes can be a significant concern.

Owning real estate in a C corporation may not be wise when considering taxes because it puts you at risk of being double-taxed.

This means that if you sell the property and make a profit, the gain may be subject to taxation twice—once at the corporate level and again at the shareholder level when the corporation pays out profits to shareholders as dividends.

The Tax Cuts and Jobs Act reduced the double taxation threat, but with our current federal debt, you face the risk that lawmakers will hike the corporate tax rates and possibly tax dividends at higher ordinary income rates.

To avoid this threat, I usually recommend using a single-member LLC or revocable trust to hold real property. A disregarded single-member LLC delivers super-simple tax treatment combined with corporation-like liability protection, while a revocable trust can avoid probate and save time and money.

If you are a co-owner of real property, it is advisable to set up a multi-member LLC to hold the property. The partnership taxation rules that multi-member LLCs follow have several advantages, including pass-through taxation.

Ultimately, whether a C corporation, single-member LLC, revocable trust, or multi-member LLC, end up being the right decision, you should definitely start by sitting down with an experienced tax professional that can help you strategize the best ways to maximize your real estate investments.

About The Author:

Nishon Watson is a seasoned tax and consulting professional, offering business management services specializing in accounting, bookkeeping, tax preparation, corporation set up, payroll and credit repair.

To schedule a consultation with Nishon, go to https://wbcenterprises.com