Author Topic: Buying Commerical Property w/ Father-In-Law. Own through S-Corp, LLC, other?  (Read 290 times)

Engineer_Erik

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  My wife and I are going to purchase a commercial property with her father.  it's a 4-unit space with my wife's business occupying one of the units.  We are splitting the down payment (~200k each).  My father in law is going to basically be a silent partner with my wife and I managing the property.  We're planning on keeping this long term.  What is the best way to set up ownership of the property?  Should we do an LLC or S-Corp?  What about inheriting her father's half (hopefully a long time away)?  What's the best way to structure for taxes and inheritance?  Thanks for any advice!

SeattleCPA

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You wouldn't want to use an S corporation. There's actually an eleventh commandment any tax accountant will share,

Thou shalt not put real estate inside a corporation.

More info here: http://www.scorporationsexplained.com/s-corporation-for-real-estate-investing.htm

BTW, a LLC should be fine. Hopefully you're not in California... (they make LLCs really expensive).


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Engineer_Erik

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You wouldn't want to use an S corporation. There's actually an eleventh commandment any tax accountant will share,

Thou shalt not put real estate inside a corporation.

More info here: http://www.scorporationsexplained.com/s-corporation-for-real-estate-investing.htm

BTW, a LLC should be fine. Hopefully you're not in California... (they make LLCs really expensive).
Thanks for the link.  Looks like S-Corp is a no no.  Unfortunately I am in California, is an LLC still the right choice for liability and taxes considering the $800/yr fee?

Also, how do taxes work?  Do I just keep profit/loss records and we spit 50/50 on each of our tax returns?  Can we choose something other than 50/50 depending on who's taxes benefit the most a certain year?  Any other record keeping that has to be done?

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SeattleCPA

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With regard to California, I guess question is whether the liability protection you get from an LLC is worth that $800 (that's the minimum) LLC franchise tax you pay. I don't know the specifics of your situation. I would guess that in many small property situations, the $800 isn't worth it... that what makes more sense is loading up with insurance. But this seems like a question for a local attorney.

With regard to the partnership accounting rules, you can allocate the income and deductions in basically any way that makes economic sense... but the one way you can't allocate is based on the partners' taxes. I.e., your allocations can't artificially move stuff around for a tax benefit.
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