Archive for the ‘Tax Strategies’ Category

Why Holding Real Estate in a C Corporation Is a (VERY) Bad Idea

March 13th, 2018 No comments

Classic Example of Double-Taxation with C Corps


Holding real estate in a C Corporation (or an LLC taxed as a C Corporation) is generally a very bad idea from a tax perspective.

Let’s assume the following facts:

  • C Corp purchases real estate for $100,000 or owner/shareholder contributes $100,000 of real estate to a C Corp
  • No capital improvements are made
  • Real estate appreciates to $1,250,000
  • The C Corp. has a taxable gain of $1,150,000 (sales proceeds of $1,250,000 less tax basis of $100,000)
  • The Corp has a tax liability of $241,500 (21% of taxable gain).
  • The Corp has slightly over a $1 million in its bank account that the shareholder wishes to invest in the stock market. The Corp distributes $1 million to the shareholder.
  • The shareholder has received a taxable dividend distribution from the C Corp. The owner reports the $1,000,000 of dividend income and let’s assume that s/he files as married filing jointly. This income, subject to tax at the capital gains rate (20%) as well as being subject to the net investment income tax of 3.8%, would result in an additional tax liability of $238,000.

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June 2nd, 2015 No comments

A rental real estate activity is subject to the passive loss limitation rules. Thus losses from this type of activity may be restricted, meaning that a taxpayer often cannot use the losses to offset non-passive income from sources such as wages, interest, and dividends. One exception to this rule is when the taxpayer qualifies as a real estate professional.

A real estate professional is a taxpayer who Read more…



September 2nd, 2014 No comments

Scholarship money is tax-free income to the recipient if used to pay tuition and fees, or when used to pay for books, supplies, and equipment required by the curriculum. Anything received tax-free is a good thing . . . OR IS IT? What most people don’t know is that students are sometimes better off claiming their scholarship as taxable income, if permitted to do so. Why would one be better off reporting a scholarship as taxable income when it can be reported as tax-free income? Read more…

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