And How to Avoid It The Tax Trap of Corporate-Owned Real Estate
Whether you’re investing in valuable California real estate for personal or professional reasons, it’s important to take the right approach to structuring and holding these assets. One option we rarely recommend is holding real estate in a corporation. REAL ESTATE CAN GO IN TAX-FREE BUT CAN’T COME OUT TAX-FREE. When real estate is transferred to a corporation, no immediate tax is triggered if the rules of Section 351 are met. This allows appreciated property to be exchanged for corporate stock without recognizing capital gain as long as the contributor controls at least 80% of the corporation after the transfer. On paper, that is a fair deal. But it’s only a deferral — any gain on the property still exists. The issue comes when removing property from a corporation — the IRS treats it as a sale at fair market value, triggering deferred gain and taxing the shareholder on distribution. S CORPORATIONS DON’T SOLVE THE PROBLEM, EITHER. Some investors assume that using an S corporation instead of a C corporation avoids these tax traps. That’s only partially true. While S corporations generally avoid corporate-level tax, appreciated property distributed from an S corporation still triggers gain at the shareholder level — the gain passes through to the shareholder, who pays the tax on their tax return.
Even worse, if the S corporation is subject to the built-in gains tax, that gain may be taxed both at the entity and shareholder levels. LLCS AND PARTNERSHIPS OFFER FLEXIBILITY WITHOUT THE TAX TRAP. Partnerships offer more flexibility than corporations when managing real estate. Under Section 721, property can be contributed without triggering gain, and appreciated assets can be distributed back tax-free. They also handle liabilities more favorably, avoiding the strict gain rules of Section 357(c). If the partnership distributes the property later, whether in the ordinary course of business or during a liquidation, no gain is recognized as long as the property’s value doesn’t exceed the partner’s tax basis. The deferred gain only becomes taxable if the property is sold in the future. WE CAN HELP WITH EFFECTIVE TAX STRATEGY FOR CALIFORNIA REAL ESTATE INVESTORS AND BUSINESS OWNERS. A properly structured partnership or LLC can preserve value and create room to adapt to future changes. Contact Dahl Law Group to protect your real estate investments and ensure your tax strategy matches your goals.
Cheesy Tomato-Basil Stuffed Chicken
SUDOKU
Ingredients • 4–6 boneless, skinless chicken breasts • 1/2 cup basil pesto • 1 cup shredded mozzarella cheese • 1/3 cup oil-packed sun-dried tomatoes, drained, oil reserved • 2–3 tbsp sun-dried tomato oil
• 2 cups cherry tomatoes, divided • 2 cloves garlic, smashed • 2 tbsp balsamic vinegar • Chili flakes, to taste • 1/4 cup fresh basil, chopped • 1 tbsp fresh thyme leaves • Salt and pepper, to taste 6. Add 1 1/2 cups tomatoes, garlic, balsamic vinegar, and season with chili flakes. Cook 2–3 minutes, then remove from heat. 7. Bake in oven for 7–10 minutes until chicken is cooked through and tomatoes burst. 8. Toss remaining 1/2 cup tomatoes with basil, thyme, salt, and pepper. 9. Serve the chicken topped with fresh tomatoes.
Directions 1. Preheat oven to 425 F. 2. Slice chicken down the middle horizontally (not cutting all the way through). 3. Spread pesto inside filleted chicken, then stuff with cheese and tomatoes before closing chicken, covering filling. 4. Place chicken in a large oven- safe skillet. Drizzle with oil. 5. Set the skillet over medium heat; cook 5 minutes.
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