Legal Question in Real Estate Law in California

Re: S-Corporation and Income from Real-Estate

This is perhaps as much a question for an accountant as a lawyer, because the liability protection characteristics are very similar, and that's where the lawyer's concern primarily rests. From a financial aspect, there are differences. Two that come to mind: The tax on an LLC may be a little higher because there is a gross receipts tax as well as the franchise or income tax. It's not huge, but for a business with high revenues and thin margins like grocery stores, may be significant. On the other hand, LLCs can pass through more tax deductions than S corporations, e.g. if you have a lot of real estate loans you can write them off beyond the at-risk limitation.

I'd say talk to whomever you rely upon for tax advice. If you don't have a tax advisor, and it should be one who is sophisticated enough to know about "at-risk deductions" without looking it up, you should probably get one.

So, it really depends upon the numbers, but without knowing them, I'd say in two cases out of three, a real estate venture will be better off operated as an LLC than as an S corp.