LLC owns real property and then elects s status - then what

[schirallicpa]

I've suddenly got 3 of these.  All of which have had an LLC purchase property.  The LLC holds title to the property.  And the LLC runs a business at that location.  (One's a pizza place, one's a real estate office, and one is an open sports arena place).  Then - they all elected to become S corps.  Now they are all looking at me to help them with their corp returns for 2024 and review those 23 returns.  And 2 of them have the corp paying the member rent.  Huh?  

So now this land is in the corp?  And now we need to get it back out?  

[DANRVAN]

They have filed 1120-S for 2023?  

2 hours ago, schirallicpa said:

2 of them have the corp paying the member rent.

Were they SMLLC that became S-Corps?

[DANRVAN]

6 hours ago, schirallicpa said:

And 2 of them have the corp paying the member rent.  Huh?  

So now this land is in the corp? 

Are you sure the land was transferred to the S-Corps?  Who ever helped them make the election must have been aware of the situation.

 

6 hours ago, schirallicpa said:

And now we need to get it back out? 

And trigger a taxable gain.  At this point probably better to leave it in.  

While there are some disadvantages to holding real estate in an S-Corp, double taxation is not one of them as in the case of a C-Corp. And in your case not former C-corps subject to BIG.

If the property is sold by the S-corp the gain just flows to the shareholders.

You will need to do some planning If somewhere down the road the S-corp decides to liquidate or distribute the property.

[schirallicpa]

Yes - the LLC is single member in all 3 cases.  

The question of whether land was transferred to S-corp confuses me.  The land is owned by the LLC.  The LLC is treated as an S corporation.  So does that mean the land still belongs to the SMLLC vs the LLC treated as an S?  The entity is the same, but the tax status changes.  I'm going around in circles.  Someone straighten me out.

[DANRVAN]

12 hours ago, schirallicpa said:

The land is owned by the LLC.  The LLC is treated as an S corporation

 

12 hours ago, schirallicpa said:

question of whether land was transferred to S-corp confuses me.

If LLC owed the land and LLC elected S corp, then land is owned by S corp.

Hopefully they were working with an attorney that can give you some guidance.

 

On 11/13/2024 at 12:22 PM, schirallicpa said:

And 2 of them have the corp paying the member rent.  Huh?  

If S corp owns land then the "rent payments' need to be reclassified.  Are the owners paid reasonable salaries?