Should You Hold Your Real Estate Portfolio Personally Or Through A Corporation?

Should You Hold Your Real Estate Portfolio Personally Or Through A Corporation?

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Should You Hold Your Latella & Bastone Financial Group - Real Estate Portfolio Personally Or Through A Corporation?

No One Approach or Structure Fits Every Single Real Estate Portfolio

This is due to the fact that every person’s situation is different and unique. This post will provide some insight into potential options; however, you should consult with tax and legal advisors who can help you determine which approach is right for you and your business.

Personal Ownership

  • Purchasing real estate in your personal name for collecting passive rental income has a primary advantage of lower graduated individual tax rates versus the higher corporate tax rates on passive rental income. Another benefit is that losses can be used to reduce other forms of potentially reducing your overall tax bill. Personal real estate ownership is a simple, cost-effective way to build a real estate portfolio.

General And Limited Partnerships

  • General and limited partnerships are commonly used when your real estate portfolio includes multiple parties. This is because taxation of partnerships is very similar to personal income tax as income is allocated and taxed by the individual partners. Like when your portfolio is owned personally, losses can be used to reduce other forms of income, but your options are more limited utilizing a partnership. General and Limited Partnerships are legal entities, which means tax, legal fees, and annual filing fees are associated with establishing them.

Corporations

  • Corporations can be used to build an effective tax strategy when building a real estate portfolio. Depending on if you are building a portfolio for rental income or flipping houses for profit, your income could be eligible for the small business corporate tax rate, allowing you to defer a significant amount of tax to reinvest in growing your real estate portfolio.
  • When considering turning your real estate investment projects into a business, you have to give careful consideration to the path you choose as it can have significant financial implications in both the short and long term. The right answer depends on your unique situation, but a few key questions to ask yourself are:
  1. How many people will own the business?
  2. What is your liability exposure?
  3. How much do you care about tax benefits?
  4. How much effort and money do you want to put into creating a business entity?
  5. Are you concerned about how you will pass on your real estate portfolio to your children or others?
Quebec Based Financial Group

There are pros and cons of each type of business structure. Before you decide on the path you want to take, you should consult with legal and tax professionals who have experience working with real estate portfolios and the business structure options available to you.