This is true because:
The income of partnerships and LLCs (taxed as partnerships) is taxed directly to the partners and the LLC members. By contrast, a C corporation pays tax on its income and then the shareholders must pay tax again on the after-tax profits distributed by the corporation resulting in higher overall taxes.
While S corporations, unlike C corporations, are not taxable on their income, partnerships are still superior to S corporations because of the greater ability to deduct
For residential real estate, the cost of a building can be deducted in equal amounts (i.e. “straight line depreciation”) over 27.5 years and, for commercial real estate, over 39 years from the date the property is placed in service. Through proper planning, you can massively increase your depreciation deductions by conducting a cost segregation study of the property.
Your rental property can be divided up for depreciation purposes between its real estate components and non-real estate components, aka personal property
Continue Reading Did you know that you can dramatically increase your depreciation deductions by conducting a cost segregation study on your real estate?
A common problem that arises in real estate partnerships is when there is an opportunity to sell and some partners want cash out and some partners want to defer tax by engaging in a like-kind exchange. The trick is to dispose of the property in a way that protects the exchanging partners from any tax on the cash received by the partners that want to cash out.
One solution is to distribute an undivided ownership interest (a “tenancy in common”
Assume that you want to make a tax-free exchange of your apartment building (the “relinquished property”) for a retail strip center (the “replacement property”). You located a great deal on a retail center, but only if you close in 30 days. However, your buyer for the apartment cannot get its financing for 90 days.
By using a “parking transaction” (sometimes referred to as a “reverse like-kind exchange”) you may be able to qualify the purchase and sale as a nontaxable
Continue Reading Did you know that you can buy replacement property before selling your existing property and still qualify for a nontaxable like-kind exchange?
Under the “partial disposition rule,” if you replace a roof (or other structural component in a building such as an elevator), you can claim a tax deduction equal to the remaining tax basis (undepreciated cost) of that roof you replaced. You then capitalize the cost of the replacement roof, elevator or other component and begin to depreciate it. You must elect to use the partial disposition rule to take this deduction, but you make the election simply by claiming the
Continue Reading Did you know that you can deduct the cost of the roof that you replace on your investment property?
The gain on sale of land that is held primarily for sale to customers in the ordinary course of business is taxable at ordinary income rates (and not at the more favorable capital gains rates). In addition, those gains may be subject to self-employment tax. The prospective increase in sale value from subdivision can suddenly become much less attractive given the increased tax burden. Persons holding land for sale as described above are known as “dealers.” Whether you are a dealer
Continue Reading Did you know that if you subdivide land you own into parcels for sale you risk converting capital gain into ordinary income?
Content by Jim Duffy and Michelle DiVita
Minnesota (and other states) generally impose income tax on companies engaged in multi-state business on that portion of a company‘s income that is attributable to Minnesota. Minnesota makes this determination based on the percentage of sales a company makes within the state of Minnesota. Under Minnesota law, receipts from performance of services are attributed to the state where the services are received. If the location where services are received is not readily determinable
Continue Reading Did you know that a recent Minnesota tax court case might impact how your business income is allocated to Minnesota?
As discussed in prior installments of Did You Know, Section 1202 of the tax code makes the gain on the sale of certain corporate stock nontaxable. This is not a deferral. It will never be taxed in the future. One of the many requirements for stock to qualify for this treatment is that it must be issued by a C corporation (not an S corporation). Unfortunately, if you have an S corporation, simply terminating its S corporation status (i.e., converting
Continue Reading Did you know that you might be able to convert your S corporation into a Section 1202 corporation to get tax-free treatment on the gain?
Content by Jim Duffy
The key advantage lies in the ability to avoid paying capital gains taxes on appreciated assets, such as real estate, stocks, or other investments. A donor can generally claim a charitable deduction for the full fair market value of the property. By contrast, if a donor sells these assets and contributes the sale proceeds, the donor would incur capital gains tax on the appreciation which would decrease the benefit of the deduction to the donor. However
Continue Reading Did you know that the tax benefits of contributing property to a charity are often greater than donating cash?