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Real Estate LLCs May Be Taxed Differently Depending on their Business

California treats dealers versus investors in real estate differently.

California has ruled that when calculating the annual fee on limited liability company (LLC) income, an LLC that deals in real estate should include in the cost of goods sold any adjusted basis in real property held for sale to customers, but not property held and sold for investment purposes.

This means dealers pay the gross receipts tax on the full sales price of the real estate. Investors pay gross receipts tax on the net gain from the investment.

The LLC fee ranges from $900 to $11,790. This fee is in addition to the $800 California minimum tax.

Gross income over $1 million is subject to $6K fee and gross income $5 million or more is subject to the maximum $11,790 fee.  

Note: You may have an overall loss for income tax purposes but still are subject to the LLC gross receipts fee.

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Richard Pon CPA, CFP