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<\/p>\nDoes your business need real estate to conduct operations? Or does it otherwise hold property and put the title in the name of the business? You may want to rethink this approach. Any short-term benefits may be outweighed by the tax, liability and estate planning advantages of separating real estate ownership from the business.<\/p>\n
Tax implications <\/strong><\/p>\n Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they\u2019re incurred.<\/p>\n However, when the business sells the real estate, the profits are taxed twice \u2014 at the corporate level and at the owner\u2019s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate were transferred to a pass-through entity instead, the profit upon sale would be taxed only at the individual level.<\/p>\n Protecting assets <\/strong><\/p>\n Separating your business ownership from its real estate also provides an effective way to protect it from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can\u2019t touch property owned by another entity.<\/p>\n The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can\u2019t recover real estate owned separately unless it\u2019s been pledged as collateral for credit taken out by the business.<\/p>\n Estate planning options <\/strong><\/p>\n Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but some members of the next generation aren\u2019t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one heir and the real estate to another family member who doesn\u2019t work in the business.<\/p>\n Handling the transaction <\/strong><\/p>\n The business simply transfers ownership of the real estate and the transferee leases it back to the company. Who should own the real estate? One option: The business owner could purchase the real estate from the business and hold title in his or her name. One concern is that it\u2019s not only the property that\u2019ll transfer to the owner, but also any liabilities related to it.<\/p>\n Moreover, any liability related to the property itself could inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.<\/p>\n An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.<\/p>\n An LLC is more commonly used to transfer real estate. It\u2019s simple to set up and requires only one member. LLPs require at least two partners and aren\u2019t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.<\/p>\n Proceed cautiously <\/strong><\/p>\n Separating the ownership of a business\u2019s real estate isn\u2019t always advisable. If it\u2019s worthwhile, the right approach will depend on your individual circumstances. Contact us to help determine the best approach to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.<\/p>\n \u00a9 2022 <\/em><\/p>\n <\/body> \n Does your business need real estate to conduct operations? Or does it otherwise hold property and put the title in the name of the business? You may want to rethink this approach. Any short-term benefits may be outweighed by the tax, liability and estate planning advantages of separating real estate ownership from the business.\n<\/p>\n \n \n Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they\u2019re incurred.\n<\/p>\n \n However, when the business sells the real estate, the profits are taxed twice \u2014 at the corporate level and at the owner\u2019s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate were transferred to a pass-through entity instead, the profit upon sale would be taxed only at the individual level.\n<\/p>\n \n \n Separating your business ownership from its real estate also provides an effective way to protect it from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can\u2019t touch property owned by another entity.\n<\/p>\n \n The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can\u2019t recover real estate owned separately unless it\u2019s been pledged as collateral for credit taken out by the business.\n<\/p>\n \n \n Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but some members of the next generation aren\u2019t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one heir and the real estate to another family member who doesn\u2019t work in the business.\n<\/p>\n \n \n The business simply transfers ownership of the real estate and the transferee leases it back to the company. Who should own the real estate? One option: The business owner could purchase the real estate from the business and hold title in his or her name. One concern is that it\u2019s not only the property that\u2019ll transfer to the owner, but also any liabilities related to it.\n<\/p>\n \n Moreover, any liability related to the property itself could inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.\n<\/p>\n \n An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.\n<\/p>\n \n An LLC is more commonly used to transfer real estate. It\u2019s simple to set up and requires only one member. LLPs require at least two partners and aren\u2019t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.\n<\/p>\n \n \n Separating the ownership of a business\u2019s real estate isn\u2019t always advisable. If it\u2019s worthwhile, the right approach will depend on your individual circumstances. Contact us to help determine the best approach to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.\n<\/p>\n \n Does your business need real estate to conduct operations? Or does it otherwise hold property and put the title in the name of the business? You may want to rethink this approach. Any short-term benefits may be outweighed by the tax, liability and estate planning advantages of separating real estate ownership from the business. Tax […]<\/p>\n","protected":false},"author":1,"featured_media":206,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"pagelayer_contact_templates":[],"_pagelayer_content":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-207","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/comments?post=207"}],"version-history":[{"count":1,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/207\/revisions"}],"predecessor-version":[{"id":208,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/207\/revisions\/208"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/media\/206"}],"wp:attachment":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/media?parent=207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/categories?post=207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/tags?post=207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n<\/html><\/p>\n
\n Tax implications
\n <\/strong>\n<\/p>\n
\n Protecting assets
\n <\/strong>\n<\/p>\n
\n Estate planning options
\n <\/strong>\n<\/p>\n
\n Handling the transaction
\n <\/strong>\n<\/p>\n
\n Proceed cautiously
\n <\/strong>\n<\/p>\n
\n \u00a9 2022
\n <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"