Excise Tax for Commercial Property in TN

[Stacy Gunn]

We are closing on a 9 unit in TN which is considered a commercial property. I know that the FONCE exemption for the excise tax is only available for buildings with 4 or fewer units so we would be subject to this hefty tax if we own in an LLC. The deal doesn't make sense if we need to pay these taxes and I don't want to be exposed by doing this in my name vs an LLC. What have others done in this situation?

[Michael Atnip]

In TN all companies with limited liability are subject to the Franchise and Excise tax. Self-employment income gets deducted from the Excise tax base. So unless you are a real estate pro who pays self employment tax you either pay the tax or go with a general partnership which doesn't limit your liability but does take your name off of the property. A third choice is to consider some sort of trust but that's a little beyond my comfort level. My properties are with other partners so we use a limited partnership with an LLC as the general partner and just pay the tax.

The Family owned non commercial enterprise election or FONCE has been considered for repeal year after year and as you discovered is really for families they own a rental house not a larger multi family.