Property owners may hold real estate inside a C corporation because they desire liability projection. It is also possible the entity was inherited from a family member and it already held title to the real estate.

What is a subchapter corporation?

An S corporation, also known as an S subchapter, refers to a type of corporation that meets specific Internal Revenue Code requirements. If it does, it may pass income (along with other credits, deductions, and losses) directly to shareholders, without having to pay federal corporate taxes.

Are S corps good for real estate?

Holding real estate in an S corporation may seem like a great idea when forming a new entity. S corporations avoid double-taxation, protect shareholders liability, reduce self-employment taxes and (under certain conditions) allow for contribution of appreciated property to the S corporation without recognizing a gain.

What are the advantages of a Subchapter’s Corporation?

Generally, such businesses are not subject to corporate income taxes, because both income and losses are allocated to the company’s owners in proportion to their shares in the company. For a self-employed real estate agent, the advantages of setting up a Subchapter S corporation relate to tax and liability issues.

What happens to a realtor’s’s Corporation?

In the event of a successful lawsuit, only the S corporation’s assets can be seized; the broker’s personal assets are not involved. That means a real estate agent who forms an S corporation can’t lose more than she has invested in her company.

Is the C Corp really the only entity in town?

Back in the days when the C corporation (“C corp”) was really the only entity in town, many individuals formed closely-held C corps to hold their real estate or business assets. Now, many years later, the C corp’s assets have often substantially appreciated in value.

How does a corporation file taxes under Subchapter S?

Corporation taxes filed under Subchapter S may pass business income, losses, deductions, and credits to shareholders. Shareholders report income and losses on individual tax returns, and pay taxes at ordinary tax rates.