1. Owning real estate in a separate entity from the operating business can provide liability protection, limiting claims to the value of the property and accounts held with it.
2. Keeping real estate within a corporation for tax purposes may result in double taxation if the property is sold. Alternatively, holding real estate in a separate pass-through entity could allow expenses to flow through to a tax return and offset income generated from lease.
3. Business owners who manage the property themselves and make less than $150,000 annually can write off up to $25,000 in losses. 1. Separating the family business from the real estate provides more options for passing it on to active and non-active family members.
2. Equalizing an inheritance to a mix of active and inactive adult children offers more flexibility if there is more than one asset to work with.
3. Owning the business real estate separately may provide more options during the sale of the business to a third party, allowing for a stream of income to fund retirement. 1. Separating real estate from business can expose one to increased risk and taxes.
2. Creating a new pass-through entity for real estate may allow one to preserve risk, flexibility, and taxes in the future.
3. LLCs are relatively easy to set up and don’t require officers and directors, but must follow corporate formalities.
4. Cash distributions from an LLC can be distributed at the discretion of the managing member, rather than pro-rata to its members.
5. Foreign ownership of an LLC is possible, unlike an S corporation.
6. Holding real estate separately can bring many benefits, and it’s important to consult with a wealth team to determine the most appropriate approach for one’s situation.
https://www.firstcitizens.com/wealth/insights/business-owner-interest/separating-real-estate-from-business
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