New Restaurant Land and Building

[Bjorn]

A new restaurant is getting started.

Should the land be in an LLC or an S-corp? I think I heard real estate should always be in a 1065.

Business will run as an S-corp and reasonable compensation will be paid.

Mahola....

Bjorn

[sea-tax]

A new restaurant is getting started.

Should the land be in an LLC or an S-corp? I think I heard real estate should always be in a 1065.

Business will run as an S-corp and reasonable compensation will be paid.

Mahola....

Bjorn

It is not that real estate must or always should be held in a 1065, it is however what I typically suggest for my clients. If possible purchase building and land in llc and run business through 1120s.
Mainly I recommend this for liability purposes. Plus if clientt ever wants to sell business and retain property it makes accounting a little easier.

[Bees Knees]

Gear Up seminar speakers (the old ones who use to be practicing tax accountants) would always say that it is malpractice to allow a client to put real estate into a corporation. The reason being you can never pull appreciated property out of a corporation without paying tax. So if the business were to fail, but the client wanted to retain the real estate for some other business or personal purposes, tax would have to be paid first.

In contrast, a distribution of appreciated property from a partnership or sole prop is a tax free event. Basis prior to the distribution is retained after the distribution. So tax on the appreciation is deferred until the real estate is eventually sold for a gain.

[Unregistered-JON]

C or S Corp

S Corp, with no previously taxed income, works fine for owning real estate. The main reason for having two entities is you never put any assets you do not have to in a corporation with a operations with big liability exposure.

[Bees Knees]

S Corp, with no previously taxed income, works fine for owning real estate.

Even in an S corp, you can't distribute the real estate back to the owner without paying tax on the appreciation if the S corp shareholder ever decided to close the business and keep the real estate.

[Unregistered]

If

the real estate is set up in an S Corp, probably for liability protection, and the real estate is the only asset-there is no benefit to pass it out to the shareholder and the liability protection is there until you sell the only asset. We probably have clients who will always make poor decisions. We just do not want those decisions based on our advice. Limited liability is the reason you put it in the S corp and that is the same reason to keep it there until you sell...

[Bees Knees]

You get the same liability protection in an LLC. Why complicate it by putting it into a corporation?

If the owner is a single member LLC, then you don't even have to file a separate tax return.

[sea-tax]

Bees I agree property/building in LLC and business in S/C or what ever.

[DTS]

Bees & sea-tax

I would like to add a twist to this thread.

Say I own 4 properties w/businesses on them. Should the properties be held in one LLC or 4 seperate LLCs?

I've heard arguments on both sides and would like your opinions on this.

Thank you,
Dennis

[S T]

Separate LLC

Interesting question.

I have also heard of separate LLC's for each rental property or business property.

What would the advantage be to creating a separate LLC for each property?

The disadvantage I see, extra cost of setting up LLC and Filing Fees, (In Calif) for the t/p would also be a separate tax form for each LLC which would also generate minimum of $800 each LLC for the Franchise Tax Board Fee and separate Accounting and Tax Prep Fees, Positive for the Tax Preparer or Accountant = Fees.

Sandy

[sea-tax]

The only plus side of 4 llc's that I can see is individual liability protection. This would work if you set up like a nevada llc. This is not for tax purposes but rather libility protection. I read that in nevada it is against state regulation for the state to disclose who the members are . It is hard to sue someone you can't find. Anyhow I really thin it depends on the client and the size of the project.

[DTS]

Multiple LLCs

The four or five articles I have read about keeping each property in a separate LLC does refer to keeping the liability exposure to just the one apartment or business contained within it, which makes sense to me.

Sandy, you are absolutely correct about the excessive fees this would cost the client, but if the client's exposure to the limited liability is correct above, fees or no fees, to my way of thinking, it makes sense to do this.

I may be way off base with this. Just curious about the opinions of others on this subject that have tons more experience dealing with this aspect of LLCs than I do.

Dennis

[outwest]

Multiple LLC depend on state rules also..

Here in Idaho, $100 and a one page form gets you on the way, if a single member LLC, it's disregarded for tax purposes. A free checking account to match, and away you go.

On the other hand, other states have gross receipts tax or minimum franchise fees that make this much more expensive. Do the research, your mileage may vary...

Doug

[Bird Legs]

Liability Protection-LLC

Would not liability insurance help out in this?
Just asking.

[jimmcg]

Liability insurance is certainly one factor in the liability exposure equation. Usually a combination of both establishing a seperate limited laibility entity and insurance,depending on the cost, is the prudent way to go.