S Corp Treatment Of Cap Gains From Sale Of Property

I am considering transferring my real estate holdings into a S Corp to provide some added liability protection and to simply separate real estate from other assets and investments. I was thinking an S Corp (WA State) but if anyone has suggestions on a better legal entity than an S Corp I would to hear from you.



My understanding is that the transfer of the real estate into the S Corp would not be a taxable event. I assume that my basis moves forward and becomes the Corp basis. If the S Corp sells a property does the capital gains tax treatment on the gain pass through or does the IRS consider any income generated by the Corporation; including income from sale of property to be ordinary income. In other words do I risk loosing the benefit of Cap Gain tax treatment on sale of property by moving my real estate holdings into a S Corp?

Comments(3)

  • finniganps1st January, 2007

    I second Newkids response - more info needed. Also if you set up an S Corp. or LLC, AND if you are a CA resident, and do virtually anything with this entity as a shareholder/member, you will also need to file a CA return and pay tax and/or an LLC fee to CA.

    Please provide additional info.

  • apctjb1st January, 2007

    thanks for the reply; not sure what additional info to provide. The goal in forming a corp is to provide an additional layer of liability protection and to separate real estate from personal. I own about a dozen properties; some are rental income producing and some are held for appreciation. On average the rental income is slightly greater than aggregated expenses on all properties. I am a WA resident but do own a rental property in CA and pay CA tax on income from that property.

    Why is an S Corp not the best choice for holding rental properties?

    Thanks

  • mtnwizard1st January, 2007

    Both the S-corp and the LLC protect you from liabilities arising from within the company. Only the LLC protects the company from your personal liabilities.
    [addsig]

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