The Encyclopedia of Commercial Real Estate Advice

ENCYCLOPEDIA TOPIC DProperty Ownership Entity

C Corporation: This type of commercial property ownership is subject to double taxation

Very large commercial real estate holding companies often prefer to own commercial property in C corporations because profits are taxed at much lower rates. This makes sense if the company's main goal is to buy more property with the profits. Another advantage applies to owners who own 10 or more properties in the corporation. When they are applying for a loan personally, they do not have to submit balance sheets, profit and loss statements, and K-1s for each property. This is because they receive all property income from the corporation as an employee, and that income is summarized on one W-2 wage statement. Another benefit for large real estate companies is that there is no limit to the number of shareholder investors (S corporations are limited to 100). A further benefit is that the personal liability of shareholders is limited to their percentage of investment in a property.

Owning commercial investment properties in a C corp makes absolutely no sense for a smaller investor who owns less than 10 properties. The main downside to C corporations—double taxation—will hit them hard. Corporate earnings are taxed first and then when earnings are distributed to individual owners, are taxed again on their personal returns. Another negative is that corporate losses cannot be passed on to personal returns. They can only be passed on to the corporation ...