In our fourth and final installment of our continuing series on entity selection for owning real estate, we will address the business and tax law considerations concerning limited liability companies.

What is a Limited Liability Company?

Limited liability companies (LLCs) are the most popular choice of organizational form because of the inherent flexibility in most state statutes that enhances the ability of the entity to adopt features that best serve its objectives. LLCs are a very common choice for owning real estate because of their tax treatment, limited liability and flexibility in allocating power structure and management responsibilities.

The best way to understand the unique features of an LLC is to distinguish it from the other entities we’ve discussed in Parts I – III in this blog series. The principal purpose of the LLC is to obtain favorable tax benefits along with the limitation...

In the first part of our series concerning entity selection for owning real estate, we addressed sole proprietorships and tenants in common. In part two, we addressed the business and tax law considerations of partnerships. In this installment, we consider the business and tax law aspects of corporations. 

C-Corporations

Corporations are one of the oldest forms of legal entities.  A significant body of case law and statutes exist defining the rights and liabilities of shareholders, officers, directors, and third parties dealing with the corporate entity.  Certain states, like Delaware, have particularly favorable business corporation statues.  As a result, many firms will strategically organize in those states in order to obtain the benefit of those advantageous laws.  

Unlike a general partnership that can come into existence without filing anything affirmative, a corporation has a separate legal existence.  The corporate structure serves to insulate most of the debts from the shareholders.  A corporation is able to hold property in its own name and provide its shareholders with limited liability so long as the...

In the first part of our series concerning entity selection for owning real estate, we addressed sole proprietorships and tenants in common. Here we examine the business and tax law considerations concerning partnerships.

General Partnerships

A general partnership is essentially an association of two or more people to carry on a business as co-owners. No written agreement is necessary to have a general partnership. One advantage of the general partnership form of ownership is tax benefits. No taxable event happens at the partnership level. In other words, no double taxation occurs in a general partnership. The usual test the IRS uses to determine if a partnership exists is whether the partners share profits and losses, jointly own the capital and assets, and jointly control and manage the business.

General Partnership Advantages and Disadvantages

Other advantages of general partnerships include the following:

• Each partner can participate in the management of a general partnership.
• Continuity of the general partnership can be established.
• The ownership interest in a general partnership is treated as personalty rather than realty.
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Accruit performs many safe harbor reverse exchanges (also known as parking arrangements) for taxpayers.  The safe harbor transactions fit within the parameters of the safe harbor created in September 2000 by Revenue Procedure 2000-37 and governs those transactions in which the property is parked no longer than 180 days.  However, there are instances in which, for a number of reasons, the ...