What advantages does an LLC have over an S corporation for holding real estate?
Though both entities offer pass-through taxation (flow-through of tax attributes reported at the individual level), the following advantages favor the LLC (or a partnership if liability insulation is not needed) when real estate holdings are involved: * The LLC does not have the potential for limiting losses that the S corporation has (i.e., not allowing for attribution of liabilities at the entity level to count toward the shareholder’s outside basis). * The members of an LLC can retitle realty to and from the entity without adverse tax consequences (such as the potential in an S corporation for taxation on the appreciation and accumulated depreciation). * The flexibility of IRC section 704 special allocations and IRC section 754 basis elections are available to LLC members but not to S corporation stockholders. It may be noted that there are two advantages to the holding of realty in any type of pass-through entity: * Realty previously owned in severalty (or as tenants in common or j
