Holding Appreciating Assets in a C Corporation


In general you never want to have appreciating assets such as real estate held within a C Corporation. To demonstrate why, let’s go through an example of holding property inside an LLC (limited liability company) versus a C Corporation.

Let’s say you and your partner buy a property for $600,000. Over time the property appreciates to $2,000,000 and you sell the property.

In an LLC: You have gain of $1,400,000 that is split between you and your partner. The $700,000 each is taxed as long-term capital gains. Assuming you are paying at the top long-term capital gains rate of 20%, the tax per partner would be: $140,000.

In a C Corporation: You have a gain of $1,400,000 that is taxed at the top C Corporate tax rate of 35%. The tax per partner would be: $245,000.

But it doesn’t stop there. All the money is still held within the C Corporation. How are you going to get it out? If you take it out as dividends, it’ll be taxed again.

The moral of the story is: Do NOT put appreciating assets inside a C Corporation.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

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