WITH EUGENE PETTO
REAL ESTATE
Viewpoints
I
Sub Chapter “S”
A corporation that meets certain pre
scribed requirements can have its income
taxed directly to the shareholders, there
by avoiding the double taxation problem
that exists in most corporations. These
organizations are referred to as Subchapter
S corporations.
The Subchapter S corporations are use
ful during the period of construction be
fore any profits are realized. Operating
losses are significant in-the early periods
and Subchapter S permits the shareholders
to claim the operating losses. Unfortun
ately Subchapter S status terminates if the
corporation’s rental income exceeds 20
percent of its gross receipts. Most office '
buildings, shopping centers, and apartment
buildings exceed this 20 percent figure. Also
the losses claimed cannot exceed the
aggregate basis of the property and loans.
This is in contrast to the tax treatment
given partnerships who can deduct tax
losses in excess of their actual investment.
♦Given the restricted conditions of Sub
chapter S corporations it is not surprising
that most real estate investors use part
nerships as the means of ownership.
A general partnership is an association of
two or more persons to carry on a busi
ness for profit. It has many advantages for
the real estate- investor. Since it is an
agreement among individuals, it is a low
cost, easy way to form a business. Part
nerships are not taxable entities. This
means the income or losses of a partner
ship business are allocated to the part
ners* individual income taxes. This allows- —
the business to be used as a tax shelter, the
main reason partnerships are so popular in
real estate. . .
However, partnerships have some dis
advantages, the most serious being un
limited liability. This means that all the
♦investor’s wealth is at risk. Furthermore, a
partnership is dissolved any time a. mem
ber. withdraws or dies. This can lead to
many complications and interfere with the
investment strategy. Finally, all profits and
losses are allocated to the partners. Even if
profits are reinvested, the partners must
still pay income or capital gains tax on the
profits. A partner must have other means tp
pay such taxes.
Corporations have perpetual lif$, whereas
partnerships can provide for termination of
the enterprise on the death of the general
partner. In this case it is important not to
allow the term of the partnership to be
extended by a vote. The IRS interprets this
. as a perpetual life which could result in the
business being classified as a corporation.
J The most popular types of business or
ganizations in real estate are those that
♦allow a flow-through of tax losses.
Rock Concert, Beauty Pageant To BtneJk jjtt&J
Charlotte bands Southern
Transit, the Michael Riley
Group and Onyx headline a
combination rock coocert
and beauty pageant to
benefit the Johnson.. C.
Smith University-United
Negro College Fund Fri
day night, June 29, at the
, Park Center.
WGIV personalities Don
Coty and the DC Family
along with Marsha Burton
and D-Force will emcee the
event that kicks off at 8
pm.
Tickets are 15 with pro
ceeds to benefit the JCSU
UNCF campaign. Beve
rages for those of age, will
be provided by Beeler
Wholesale of Charlotte.
The concert and pageant
are being underwritten by
F.A.B. Construction Cen
ters.
“As a business neighbor,
we’ve wanted for some
time to become involved
with and support Johnson
C. Smith University,” re
marked F.A.B. President
Arthur B. Jacoby. “I hope
the event will add sub
stantially to the funds
available for black edu
cation in Charlotte.”
The beauty pageant will
select a lb. F.A.B. -
MAN (a seemingly con
tradiction in terms, but
then JCSU women’s team
coaches have yet to explain
a lady Golden Bull). En
trants must be sponsored
by a sorority, fraternity or
black business. Contes
tants will be Judged on
articulation, casual wear,
evening wear and poise.
Oh, yes, tradition will he
observed with a swimwear
competition. Judges will be
Bea Thompson of WBTV,
Clara Williams of WGIV,
Carrie Graves of the Char
lotte Chapter of the Sou
them Leadership Confer
ence and Steve Daniel* of
Main Attractions, Inc.
“We’re really excited
about the top flight en
tertainment provided and
are grateful for the sub
stantial help that several
Charlotte companies are
* providing to insure an
entertaining and success
ful evening,” added Dr.
Gloria Duval of the JCSU
- Development Office.
Advance tickets are
available at the F.A.B.
Construction Center, 2730
Roarells Ferry Rd.
3ni,c.i Ic.iiavi
/ t>»ww»#.n||jBgf in Gospel Music
• “Golden Oldies” - Mon.-Fri., J-2 P.M.
f. -r; j;!.' h:i •
• Ministry programs from the Charlotte communi*
• “Flea Market” - Mon.-Fri., 11-11:15 A M.