Diane Kennedy
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- Aug 31, 2007
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So, at the beginning of the year part of the action I took was to create an entity for real estate. Sadly, I got some bad advice and created a C-Corp. I have since been told many times that this is a pretty bad entity to hold real estate in (for a buy & hold/rent strategy). At least I took action, but now I'm sitting with this corporation that has done no business, and the end of the year (tax year ends Dec 31) coming up and I'm not sure what to do.
Can anyone think of a reason to keep the entity around if I'm not doing any business with it? Or should I look into having it dissolved and form an LLC?
Ideas welcome.
It sounds like you'll be okay with just dissolving, but for anyone else reading this, do NOT dissolve a corp lightly. There are often unintended tax consequences when you do so.
But, assuming that you did no transactions and didn't move any assets to the C Corp, you should be fine. A C Corp, as you discovered, is not a good entity for real estate because you lose the long term capital gains treatment when you sell and it's impossible to transfer out of without a tax consequence.
Now - what to do with the company.... What TYPE of real estate investing do you plan to do? If you're doing rehabbing, fix and flips, wholesaling or any other form of short term hold strategy, you have a business - not an investment. That means that you are better off having an S Corp. If that's the case, make the S Corp election on your C corp and you're golden.
On the other hand, if you're going to hold these long-term, then you will want an LLC taking the default tax treatment.