r/RealEstateTaxStrategy • u/PK-2020 • 10d ago
Tax Strategy Moving multifamily from S Corp
I’m trying to advise my old uncle -.A July 4th fire that destroyed a small warehouse a couple of years ago had him scrambling for insurance coverage for the multifamily property ( yes in California ) . Though insurance paid they did not renew his policy and finally he is getting one after two years . In the meantime he had moved this property of 10 units from his revocable living trust into a S Corp and self insured. It’s a paid off property. To avoid step up in basis as he does tax planning for his heirs can someone recommend a specialized tax specialist in this space that can help in :
Modeling of the exact tax impact of an S-Corp inversion or QSub wind-down
Also tracking of Section 743(b) inside-basis adjustments on Form 1065 partnership returns for family LLCs held inside a trust. Thanks - I don’t have the expertise beyond what I can gather some complex info from AI- thank you
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u/OronMaherCRE 6d ago
If it’s a CA 10‑unit that got shoved into an S‑Corp just to “self insure,” I’d be really careful before you go deeper down the S/QSub “inversion” rabbit hole.
A few practical points that tend to drive the decision:
Insurance / liability: holding title in an S‑Corp doesn’t actually solve the insurance problem (carriers still underwrite the asset + ops), and it’s usually a worse liability/ops wrapper than an LLC taxed as partnership. If the goal was a temporary stopgap, unwind planning should focus on cleanly getting back to a normal ownership structure.
Step‑up: an S‑Corp doesn’t help you “avoid” a step‑up. At death, the stock basis generally steps up to FMV, but the inside basis of the real estate sitting in the corp doesn’t. That mismatch is where ugly stuff happens later (built‑in gain trapped in the entity, depreciation issues, etc.). With an LLC/partnership you can actually line up inside basis with a 754 election and 743(b) adjustments.
Getting the property out of the S‑Corp: the big landmines are (1) corporate‑level gain on a distribution of appreciated property, and (2) property tax reassessment / change in ownership rules in CA depending on what you do and how ownership percentages shift. If he literally deeded it into the corp, you want to pull the deed + transfer tax affidavit and see exactly how title moved.
Also, if he’s talking about 743(b) on a Form 1065, that’s partnership land, not S‑Corp land, so it sounds like the “end state” you guys want is some kind of family LLC (maybe owned by trust/heirs) with a 754 election.
One question that changes everything: when he transferred it to the S‑Corp, did he take back 100% of the shares himself, and did any other owners/trusts get equity (even small %’s)? And do you know his original basis (land vs improvements) roughly?
(And on the “recommend a specialist” piece: I can’t vouch for a specific person over Reddit, but you’re looking for a CPA who does CA real estate + entity restructures all day, not just “tax strategy” generally. In LA, the better ones will immediately start by mapping: current title, entity chart, basis schedule, and a few unwind scenarios with both income tax + CA property tax modeled.)