[Grant Cardone Video Legit?] Tax Structure Question for Active Income and Passive Real Estate
**Main Question:** Can I take the profits from my S Corp business and then buy rental properties (as LLC's) and show the real estate purchase as an expense on my business, therefore lowering my taxable business income (down to zero if I spend all of the profits on real estate)

**Background:** I run an Internet business, I just recently created an LLC (I will be filing taxes as an S corp) . Can I add additional LLC's to my business and structure it so that I can buy real estate rentals with all of the profit and show that I did not make a profit on my S corp Internet business?

It recently dawned on me that this may be possible, before I thought I had to get taxed on my Internet business, put the money in my personal bank account and then buy real estate. I saw this [Grant Cardone YouTube video](https://www.youtube.com/watch?v=_9ehONOxy5o&amp;t=489s) and then started to look into it more and so this Reddit post is to check and validate if this is even possible. I am sure this is a dumb questions, but accurate advice would be much appreciated.
[{"id": "ikmy1mt", "text": "(Not a CPA or tax advisor) \n\nYes your corp can own rental properties using what would otherwise be profit as a downpayment (or buy outright). \n\nThe corp still pays its corp income applicable taxes though.", "replies": [{"id": "ikn67ys", "text": "This is correct.  Tax wise, buying a property is treated more like buying equipment for a business.  If a business buys a truck, it\u2019s a capital investment which gets depreciated over time (and you can choose to accelerate the depreciation in year one.)  The down payment on the truck is not expensed.\n\nReal estate would be treated the same way.  Down payment is not expensed, but the structure is depreciated and there are ways to accelerate the depreciation in year 1.", "replies": [{"id": "ikn929o", "text": "Yes, but the depreciation reduces it's basis which is later paid back upon disposition of the property. It's a good for a \"short term\" income reduction but the depreciation is ultimately recaptured in sale so it's a little moot. Good if you're expecting a significant income reduction in the future, not so good if you're not. Can't remember if this is considered capital gains or ordinary income though.\n\nAlso not a CPA or tax advisor so take this with a grain of salt", "replies": [{"id": "ikncqai", "text": "It gets recaptured at 25% which is lower than a lot of marginal income tax brackets\n\nEdit: this is on the straight line portion of depreciation. On the accelerated portion, it is treated as income.", "replies": [], "depth": 4}, {"id": "iknq2fk", "text": "This is true, but then you can exchange your face off until you die and your spouse/kids will have a step up in basis. It\u2019s stressful but possible", "replies": [{"id": "iknun18", "text": "I'm doing my first exchange right now. It's a reverse exchange (buy then sell.). There's a lot of paperwork involved, that's for sure!", "replies": [{"id": "ikoco7d", "text": "It is, I\u2019ve talked to folks who are in their 70s and have always exchanged\u2026 talk about pressure to find an up leg", "replies": [{"id": "ikoi4l0", "text": "Now that I've learned about reverse exchanges, in the future I think I'll just let myself feel free to do it that way.  It seems easier to find something to buy first and then you have 45 days from closing to identify which of your properties you want to sell to go into the exchange, plus 6 months to get them sold and closed.\n\nThe main differences are cost, because the reverse exchange costs like eight or $9,000 instead of $1,500ish for a regular sell then buy exchange.  And financing.  A separate entity gets created to hold the buy property until your other properties sell.  So if you're using financing you need a lender familiar with that scenario who can fund the initial purchase and then work the proceeds from your later sales back into the note and reamortize or whatever.\n\nIn my case we have enough credit lines available to buy the new property so this won't be an issue.  But I'm curious how much more trouble or expense there would be if we had to finance the purchase.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iknjz8r", "text": "Take anything Grant Cardone says with a mountain of salt. \n\nWhat you're missing is that down payment are not expenses so you would still need to generate paper losses on the RE to accomplish the tax avoidance you're looking for.  While this is possible through things like cost segregation and section 179 depreciation unless you want to own and manage real estate you're probably setting yourself up for lower long run returns by letting the tax tail wag the internet business dog.", "replies": [], "depth": 1}, {"id": "iknogon", "text": "Yes, but can't use depreciation on a corp", "replies": [], "depth": 1}, {"id": "iknrdgs", "text": "Nothing about Grant Cardone is legit.", "replies": [], "depth": 1}, {"id": "iko0pmm", "text": "Grant Cardone is a joke. He's a syndicator with absurd fee's. He buys a 2 cap, charges absurd fee's at time of purchase, management and then sale.\n\n&amp;#x200B;\n\nHe foists shit deal onto people that follow him.", "replies": [], "depth": 1}, {"id": "iko3i5p", "text": "You would be wise to learn the phrase \"material participation\" as well as \"depreciation recapture\".\n\nAlso, learn about the changes taking place with \"like kind exchanges\".\n\nAlso, you are going to struggle to find a cost segregation firm that can allow 50% of the value to be depreciated in year one. \n\nFinally, good luck  with finding debt at rates that makes your concentric rings of cost seg deals make sense. Lots of folks don't understand that the last 10 years were the easiest ever in terms of getting access to debt.", "replies": [], "depth": 1}, {"id": "iko6xdd", "text": "No the real estate is still a passive activity. \nYou don\u2019t want to put passive income into your s corp. \n\nPut it into an LLC, become a RE professional or marry one who works on your RE. this theoretically could work then. It is tough to meet the RE professional designation and have another job though.", "replies": [], "depth": 1}, {"id": "ikomrop", "text": "The way I do this is to run everything through a trust.  Put your personal and business assets into the trust.  You'll be the trustee with 100% power &amp; discretion to manage and control the trust.  Set up an LLC to run your business.  Make the trust a 90% member in the LLC.  Have the trust lease the business assets to the LLC.  The lease payment will be 70% of the pre-tax net income of the LLC.  If your pre-tax net income was $1 million, you transfer $700,000 to the trust as a lease payment.  That leaves $300,000.  The trust gets paid $270,000 as a K1 distribution for its 90% in the LLC.  This leaves just $30,000 in the LLC from which to calculate your taxes - won't be much, if anything, of course.  \n\nThe $970,000 transferred to the trust is considered passive income for the trust.  According to IRS Code 643, you, the trustee, can declare this as an extraordinary dividend to the trust, which means any taxes can be permanently deferred.  \n\nNow, you have tax-free for the trust to use to buy the real estate you want.  The properties become assets of the trust.  Any rents from them will also be tax free as passive income.  Because the trust has a spendthrift provision, you get 100% asset protection on them.  \n\nThis is how I run my real estate investing business.  It works great.  It's 100% legal.  Grant Cardone has the same trust, by the way.", "replies": [{"id": "inbm9xc", "text": "will the trust have access to financing/debt to buy properties with this setup?", "replies": [{"id": "irjf787", "text": "You would have to create business credit and lines of credit for the trust, before it could obtain financing to purchase properties.  Conversely, you could finance them through your personal credit, then sell them to the trust.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iktkigu", "text": "I AM NOT A CPA. \n\nFirst off, you normally do not want to purchase real estate in a S Corp. It is not as tax efficient.\n\nSecond, keep your investments separate from your business. It limits your risk if there is an issue; (setup a separate LLC for your investment property).\n\nIf the property you own is say an office for your business. You will buy the property in your NEW LLC and then your INTERNET S CORP will pay rent to the NEW LLC. This will minimize the income that is subject to FICA. You are not a real estate professional so you most likely are unable to reduce your earned/ordinary business income with depreciation from investment real estate.\n\nASK YOUR CPA BEFORE DOING ANYTHING.", "replies": [], "depth": 1}]