Why is real estate generally separated into an LLC from a S Coprporation

[fuller7378]

I have clients who have their real estate set up in an LLC. The day to day business is typically done in a S Corp. I am trying to determine the reasoning behind this. I'm assuming it is due to some liquidation taxation rules on real estate. Any words of wisdom?

[DaveinTexas]

Attorneys

I have clients who have their real estate set up in an LLC. The day to day business is typically done in a S Corp. I am trying to determine the reasoning behind this. I'm assuming it is due to some liquidation taxation rules on real estate. Any words of wisdom?

I know from speaking with a lot of them that Attorneys recommend LLCs for segregating assets and separating activities within one business. If the Corporation is sued, one of the assets that would not be "up for grabs" would be the real estate that is housed in an LLC, separate from the Corporation. From a tax standpoint, LLCs are handy because (if the federal tax election is setup properly) the real estate can be separated from not only the owners for liability purposes but from the actual business too.

The real estate can be placed in and taken out of an LLC without tax consequences (if setup properly of course). This can't be done in a C or S Corp. Inside a C or S, a simple paperwork shuffle of a title transfer from the Corporation to the Shareholder can cause a taxable event. Not so in an LLC, taxed as a Partnership or DRE. Example: A tax firm houses the Commercial Building and their tax practice within an S Corp. Another firm wishes to purchase the firm's client list/goodwill, etc but does not wish to purchase the building. The selling firm would either be stuck renting the building to someone else or transferring (selling) it to the shareholders (taxable event). If the building was placed in an LLC separate from the S Corp, the building could be transfered without a taxable event.

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