OpCo PropCo: How Businesses Split Operations and Real Estate for Tax and Capital Efficiency
Warren Team
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Key terms
- REIT (Real Estate Investment Trust)A company that owns, operates, or finances income-producing real estate. Allows investors to earn real estate income without buying property directly. Must pay 90% of income as dividends.
- Estate TaxA federal or state tax imposed on the transfer of a deceased person's assets to their heirs, calculated based on the total value of the estate above a certain exemption threshold. As of recent years, the federal estate tax exemption is quite high, meaning most estates do not owe federal estate tax, though some states impose their own estate taxes with lower thresholds. Proper estate planning using trusts and other strategies can help reduce or eliminate estate tax liability.
- Capital Gains TaxA tax on the profit from selling an asset that has increased in value. Short-term capital gains on assets held less than a year are taxed as ordinary income, while long-term gains on assets held over a year receive preferential lower rates.
- Real Estate SyndicationA partnership structure where multiple investors pool capital to purchase larger properties than they could afford individually. A sponsor or general partner manages the investment while limited partners provide capital and receive passive income distributions.
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