Vince Iannello shares the benefit for real estate agent to incorporate – PRECs

Posted on
by

A Personal Real Estate Corporation (PREC) is a Professional Corporation that real estate brokers and agents can establish. Vince Iannello, President of Iannello & Associates Professional Corporation, presents the important points you need to know in order to determine if a PREC is the right for you:

With a PREC, the only activity the corporation can take part in is billing the brokerage to get payment for your real estate commissions. Under a PREC, you cannot operate any other type of business, buy and sell property, or promote through the corporation, among other constraints. An experienced lawyer can explain the vital differences of a PREC and make sure your corporation is operating legally. You also need to make sure you have the correct legal agreements set up with your real estate brokerage and that you are appropriately following all the terms set out in the contract. Your lawyer can explain the agreement to you in detail and make sure you’re aware of the contract’s terms and conditions.

Some of the benefits are as follows:

  • PRECs can set up a Health Spending Account, or HSA. This enables them to be reimbursed for medical costs that are incurred. Thus, the personal tax hit is alleviated on such expenditures. This applies to all the employees of the PREC, and not just the realtor.
  • PRECs can take benefit of corporate tax rates. This means that where the present top marginal tax rate for individuals is more than 53%, if a realtor’s sole business comes from PREC income, they can reduce their corporate tax rate to about 12%. If the income is kept in the PREC and not distributed to shareholders, this is a vast tax benefit. Personal taxes start to apply once corporate funds are distributed to shareholders, and hence, realtors who necessitate all their corporate income for personal use may find that a PREC is not right for them for this reason.
  • In the event that the PREC shares are sold, in certain situations the shareholders have access to the Capital Gains Exemption. The criteria to meet the exemption are wide-ranging, and include not accumulating cash or non-business assets. Thus, excess profits will need to be distributed to the shareholder to meet the criteria for the exemption. This may offset the advantage depending on the situation.
  • PRECs permit realtors to access corporate owned life insurance, which is an outstanding tool for tax savings and estate planning.
  • The PREC can pay dividends or salaries to people other than the realtor, which opens the chance for income splitting. Marginal income tax rates can thus be used. That being said, the tax on split income rules will still apply, and all salaries should reflect the value of the work completed by the individuals with whom the income is split.

Vince Iannello says that a PREC should not be confused with a corporation set up by a real estate investor to own real estate. A PREC is only for a real estate agent. Real estate investors may not advantage from setting up a corporation to hold their real estate investments.

Media Contact
Company Name: Iannello and Associates
Contact Person: Vince Iannello
Email: Send Email
Country: Canada
Website: https://iannellocpa.com/