Tax-Efficient Structures for Real Estate Investments: A Guide for Family Offices

For family offices, real estate is more than just a portfolio allocation. It’s a long-term strategy for building wealth, generating income and creating financial security for future generations. Yet too often, families invest heavily in property without taking time to choose the right ownership structure. That oversight can come at a steep cost.

We’ve worked with real estate-focused family offices that unknowingly held high-value assets in personal names or single-member LLCs, only to face avoidable tax liabilities and legal exposure. What starts as a profitable investment can quickly become inefficient when income is taxed at higher rates or estate transfer plans aren’t coordinated.

For family offices investing in real estate, tax-efficient structuring is essential. The right structure supports long-term goals by minimizing tax burdens, protecting assets, and providing operational flexibility.

This guide outlines key tax-efficient structures family offices should consider when holding real estate, whether your portfolio includes rental properties, commercial developments or joint ventures.

The growing role of family offices in real estate

Real estate continues to gain popularity as a core holding within family office portfolios worldwide. According to the UBS Global Family Office Report 2024, surveys of 320 single‑family offices revealed that middle‑eastern offices averaged 15% of their portfolios in real estate, highlighting the class’s appeal in certain regions. Similar results can be found in other regions.

While the exact global average figure may vary, the report underscores real estate’s unique position in the mix. This is thanks to its ability to produce steady income, give tangible control over assets and serve as a hedge against inflation.

These benefits are particularly valuable for families seeking intergenerational wealth preservation. Real estate offers tax-deferred growth, depreciation deductions and long-term capital gains treatment, all of which contribute to lower effective tax rates. It also provides diversification and an inflation-resistant income stream in a world of unpredictable markets.

However, as portfolios grow, so does complexity. Properties held in individual names or in tax-inefficient entities often trigger issues such as increased audit risk, unnecessary self-employment taxes and limited estate planning flexibility. Even small structuring mistakes can create long-term consequences, especially when properties span multiple states or include international owners.

The Treasury Department’s General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals highlight increased IRS scrutiny of pass-through entities and high-value transactions. For family offices, that means heightened expectations around compliance, documentation and tax reporting. Without the right structure, even the most successful investment can face avoidable costs.

Families who plan ahead can significantly reduce these risks. By working with experienced advisors and selecting structures that align with their investment strategy, family offices can retain more income, shield assets, and support smoother generational transitions.

Entity structures that reduce tax exposure

Choosing the right legal entity is one of the most important tax decisions a family office can make when investing in real estate. Different structures offer very different benefits, especially when it comes to income taxation, liability protection, estate planning, and flexibility in ownership transfer.

For many family offices, limited liability companies (LLCs) are the preferred choice due to their pass-through tax treatment and flexibility. Income from the property flows through to the members and is taxed at the individual level, which avoids corporate double taxation. In addition, LLCs offer liability protection, which is essential for real estate projects that carry financial or legal risk. The structure also allows for multiple members (including trusts or other entities), which supports long-term succession planning.

Limited partnerships (LPs) are another common vehicle, especially when the family prefers a general partner to manage operations while limited partners contribute capital. This model is frequently used for large-scale development projects or syndicated investments.

In contrast, S corporations offer pass-through taxation but come with strict ownership rules. Real estate investors may face challenges when trying to contribute appreciated property to an S corp without triggering gain. For this reason, S corps are less commonly used in real estate-heavy portfolios.

Some family offices explore real estate investment trusts (REITs) when scaling their holdings or investing alongside outside parties. REITs must distribute at least 90% of taxable income to shareholders, which can create a tax-efficient income stream. But they’re subject to complex compliance rules and limitations on asset types.

Less commonly, a C corporation might be used when deferral of tax is prioritized over pass-through treatment. While the corporation pays its own tax, long-term retention of income at the corporate level may support growth. However, this comes with the downside of double taxation on dividends and careful planning is required.

When choosing a structure, family offices must also consider how income will be distributed, how financing will be secured, and how ownership will be transitioned. At James Moore, we help clients evaluate the best path based on the type of property, income goals, geographic location and long-term estate and succession planning.

Utilizing trusts and multi-tiered structures

Family offices with significant real estate holdings often benefit from building multi-tiered ownership structures that include irrevocable trusts, family LLCs, and partnerships. These strategies not only provide tax advantages but also align with estate planning and asset protection goals.

One of the most powerful tools in this space is the irrevocable trust, which can remove property from the taxable estate while still allowing for structured distributions to beneficiaries. Trusts such as Spousal Lifetime Access Trusts (SLATs) or Grantor Retained Annuity Trusts (GRATs) are commonly used to transfer appreciating real estate assets while minimizing gift and estate tax consequences.

When properly executed, these trusts allow families to “freeze” the value of assets for estate tax purposes, ensuring that future appreciation benefits heirs without increasing the estate’s taxable value. In some cases, a Qualified Personal Residence Trust (QPRT) may also be appropriate for residential real estate with long-term appreciation potential.

Using trusts also provides asset protection from potential creditors or litigants. For real estate located in high-risk jurisdictions or operated as part of a development portfolio, this protection can be critical.

Combining trusts with LLCs or LPs allows family offices to separate management responsibilities, consolidate voting rights and distribute income in a tax-efficient manner. These multi-layered structures also create flexibility in how income is distributed or reinvested across generations.

The IRS has specific guidance on the use of trusts in estate planning and taxation. Trust planning must be coordinated with tax professionals to avoid unintended income tax consequences or valuation issues.

At James Moore, we routinely assist clients in aligning their real estate strategies with long-term estate and tax objectives. These structures require careful drafting, but the benefits can last for generations.

State considerations: location matters more than you think

Real estate investors often focus on the physical attributes of a property, but the tax implications tied to its location are just as important. Family offices managing multi-state portfolios must account for different rules governing income tax, property tax, capital gains treatment, franchise tax and entity-level compliance. A structure that works well in Florida may be inefficient or costly in New York or California.

Florida remains a preferred jurisdiction for real estate investors and family offices, largely because it does not impose a state income tax on individuals. This creates a planning opportunity for families relocating their tax domicile or considering where to form holding entities. Florida also offers strong homestead protections, favorable trust laws and no inheritance or estate tax. These benefits make the state attractive not only for property ownership but also for long-term residency and estate planning.

In contrast, states like California impose high personal income tax rates (up to 13.3%) and aggressively tax income derived from real estate held within their borders, even if the entity is based elsewhere. New York similarly imposes significant taxes on capital gains and requires filing obligations for nonresident partners with in-state property investments.

These distinctions also apply to trusts. For example, some states tax trusts based on the residency of the grantor or beneficiaries, while others focus on the place where the trust is administered. Situs selection for trusts can have a meaningful impact on tax exposure.

It’s not just about where the property is located; it’s about where the entity is formed, where beneficiaries reside and where the family office conducts its operations. Multi-state tax planning should be addressed as early as possible in the investment process to avoid unexpected filing requirements or penalties.

Our team at James Moore regularly works with private clients to develop tax strategies for real estate holdings in multiple jurisdictions.

Foreign investment and FIRPTA: what global families must know

Family offices with foreign ties or non-U.S. beneficiaries face additional tax planning challenges when investing in U.S. real estate. The Foreign Investment in Real Property Tax Act (FIRPTA) imposes specific tax rules on foreign individuals and entities that sell U.S. real property interests. If not addressed properly, FIRPTA can result in substantial withholding and reporting obligations that disrupt investment returns.

Under FIRPTA, a foreign seller is generally subject to a 15% withholding tax on the gross sale proceeds of a U.S. real estate asset. This withholding applies regardless of whether the transaction results in a gain. Although the foreign owner may later file a U.S. tax return to claim a refund for any overpaid tax, the process can take several months and creates liquidity issues.

To reduce FIRPTA exposure, international family offices often use blocker corporations, typically U.S. C corporations that hold the property. While this introduces a corporate layer of tax, it avoids direct ownership of U.S. real estate by the foreign individual and can mitigate estate tax risk. Others explore the use of qualified investment entities (QIEs) or foreign corporations structured to comply with tax treaties that lower withholding obligations.

Inbound structuring is especially important when the family office is based overseas or when U.S. real estate is being acquired as part of a generational wealth strategy. Without proper planning, foreign owners may also be subject to U.S. estate tax on U.S.-based assets, which can reach 40% of the asset’s value at death.

The IRS provides detailed guidance on FIRPTA, including applicable withholding rates and reporting obligations, on its FIRPTA information page.

We assist global families and their legal advisors in structuring U.S. real estate investments to avoid unnecessary tax burdens. Planning in advance allows families to retain more of their gains, manage liquidity and comply with U.S. reporting rules without sacrificing operational control.

Build smarter real estate portfolios with tax-efficient structuring

Real estate offers family offices a reliable path to long-term income, diversification and multigenerational wealth. But without thoughtful tax structuring, even the strongest property investments can lead to unnecessary liabilities. From entity selection and trust planning to multi-state coordination and international considerations, every decision affects the bottom line.

At James Moore, we partner with real estate-focused family offices to develop customized tax strategies that align with your investment and estate planning objectives. Our experience spans private clients, trust and estate structuring, and real estate advisory services across the United States and globally.

To protect your real estate gains and preserve generational wealth, contact a James Moore professional.

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