You’ve worked hard to grow your business, and now you’re ready to invest in commercial real estate. The cash is in your corporation, so buying the building through your company seems like the simplest choice. But when it comes to real estate and entity structure, what seems simple today could turn into a costly mistake tomorrow.
Here’s what you need to know—before you buy.
Avoid Double Taxation
Whether you’re operating as a C Corporation or an S Corporation, holding real estate inside a corporate entity is rarely the most tax-efficient option.
For C Corporations, the issue is clear: You’ll likely face double taxation—once when the property is sold (typically at a 21% federal rate plus any applicable state tax), and again when the proceeds are distributed to shareholders.
Even S Corporations, which are treated as pass-through entities, present problems when it comes to real estate. If you ever need to distribute the property—say you and a co-owner go your separate ways or you want to hold the property personally—it’s treated as if the corporation sold the property at fair market value. That can trigger an unexpected tax bill at the entity level.
So, What’s a Better Option for You?
In most cases, holding real estate in an LLC or partnership provides greater flexibility and fewer tax complications.
For example:
- If you and a partner decide to divide properties and go your own way, you can often do so without triggering a taxable event.
- You get carryover basis, not a forced gain recognition.
- You avoid the corporate-level tax entirely.
It’s not just about what happens today—it’s about protecting your future.
A Real-World Example
We recently worked with a client who was considering purchasing a building in Nevada through their S Corporation. On paper, it seemed easy: The cash was already in the entity, and they were the 100% owner. What could go wrong?
We walked them through the long-term implications—what would happen if they ever sold the company, wanted to keep the real estate, or needed to distribute the asset. After reviewing the options, they decided to create a new LLC to hold the building, keeping their real estate investment separate from their operating business.
The result? Greater flexibility, better tax treatment, and fewer headaches down the road.
Why Structure Matters Beyond Tax
Structuring your real estate correctly isn’t just about taxes (although that’s a big piece of it). It also:
- Protects your business from real estate-related liabilities
- Makes it easier to sell your business or property independently
- Keeps your accounting and financial reporting cleaner and more straightforward
Don’t DIY This One
This kind of advice isn’t new or groundbreaking—it’s something experienced CPAs and advisors are trained to look out for. But it’s also not something you want to guess at or handle after the fact.
Real estate deals are significant. Let’s make sure you structure them the right way from the start. Thinking about buying property through your business? Let’s talk before you sign. We’ll help you make a decision that supports your goals—today and in the future. Contact us!
