Is Holding Real Estate in a Corporation Right for You?

By:

Amanda Willing

On

23/11/2024

Reading time:

4 min

Summary:

Learn the pros and cons of holding real estate in a corporation and decide if it's the best option for you!
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Real estate investing is a popular way to build wealth and generate passive income. As with any type of investment, it's important to consider the most advantageous way to hold and manage your assets. One option to consider is holding real estate in a corporation. This involves incorporating your real estate holdings as a separate legal entity. In this blog post, we'll explore the advantages and disadvantages of holding real estate in a corporation, as well as the tax implications and important considerations to keep in mind.
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The Advantages of Holding Real Estate in a Corporation

One of the main advantages of holding real estate in a corporation is liability protection. By incorporating, you create a separate legal entity that separates your personal assets from those of the corporation. This means that in case of lawsuits or other legal issues related to the properties, your personal assets and finances will be protected. This can be especially beneficial if you own multiple properties or have a high net worth.
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The Advantages of Holding Real Estate in a Corporation

Another advantage of incorporating for real estate holdings is the potential for tax savings. By holding the properties in a corporation, you may be able to deduct certain business expenses, such as property taxes and maintenance costs. Additionally, you may be able to take advantage of lower tax rates for corporations, depending on your specific situation. Consulting with a tax professional can help ensure you are maximizing your tax benefits.
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Tax Implications of Holding Real Estate in a Corporation

However, there are also downsides to holding real estate in a corporation. If a real estate property is owned by a corporation, it cannot qualify for the Principle Residence Exemption "PRE". Even if you, as an individual, live in the property and treat it as your primary residence, the tax rules don't allow the corporation to claim the exemption. This means any gain realized on the sale of the property will be subject to corporate income tax on the capital gain, potentially resulting in a significant tax liability.

A further factor to keep in mind, is if your corporation owns rental properties, the profits will be subject to corporate income tax. Any distributions you receive from the corporation will also be subject to personal income tax. However, there may be opportunities to minimize this double taxation through strategies such as paying yourself a salary or issuing dividends.

In conclusion, holding real estate in a corporation can offer benefits such as liability protection and potential tax savings. However, there are also potential drawbacks and it's important to carefully consider your individual circumstances and financial goals before making the decision to incorporate. Consulting with a financial advisor and tax professional can help ensure you make the best choice for your real estate investments.

Contact Willing Law today to open your Corporation and to assist you with your next real estate transaction!

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