In Florida, many business owners choose to separate the ownership of their operating business and their real estate into two LLCs — one for the business and one for the property. This structure is often used to manage liability, create flexibility for estate or exit planning, and improve financing options. However, it’s not without drawbacks, particularly in Florida where commercial rent is subject to state and local sales tax.
Advantages of Separate LLCs
The primary benefit is liability protection. If the business is sued, the real estate may be shielded, and vice versa. Many owners also prefer the flexibility this structure provides — allowing them to sell the business while keeping the real estate, refinance the property separately, or bring in different partners for each entity. It can also make estate planning cleaner by allocating assets differently across heirs or trusts.
Having two LLCs also provides accounting clarity. The operating company can deduct rent paid as a business expense, while the real estate LLC reports that rent as income and offsets it with depreciation, mortgage interest, insurance, and property taxes. That said, these deductions are generally available even when both assets are held in a single LLC. The difference is in how the income and deductions are separated and reported, not whether they exist at all.
Florida Sales Tax Implications
Florida imposes a sales tax on commercial rent, even when the landlord and tenant are related entities. As of 2025, the statewide rate is 2%, with most counties adding a 1% local surtax, bringing the total to around 3%. This applies not only to base rent but may also apply to passed-through expenses (such as taxes or insurance) if those are required under the lease.
In many Florida counties, a combined 3% sales tax (2% state + 1% local) is applied to commercial leases. If rent and passed-through expenses total roughly 7% of a property’s value annually, this equates to an added 0.21% annual tax burden — or about $2,100 per year per $1 million in property value. This is a recurring cost that exists solely due to the separation of ownership between entities.
When a Single LLC May Be Better
Some owners choose simplicity over separation and hold both the business and property in a single LLC. This eliminates Florida’s sales tax on rent, reduces paperwork, and simplifies tax reporting. Crucially, this structure does not eliminate depreciation, mortgage interest, or the ability to perform a 1031 exchange on the real estate, so long as it is held for business or investment purposes.
The main tradeoff is reduced liability protection. If the business is sued, the real estate is exposed, and vice versa. However, it’s worth noting that many owners already carry insurance — including general liability, property insurance, and umbrella policies — which are specifically designed to cover these risks. While coverage may be capped and won’t eliminate all exposure, insurance is typically the first line of defense and often sufficient in lower-risk scenarios. This is, in fact, why most owners carry it in the first place.
Conclusion
Separating the ownership of your business and real estate into distinct LLCs provides strategic flexibility and legal protection — but comes at the cost of Florida’s commercial rent sales tax and increased complexity. Holding both in a single LLC simplifies operations and avoids the sales tax but reduces liability shielding. There’s no one-size-fits-all answer. Your decision should reflect your goals for asset protection, exit strategy, tax planning, and administrative burden.
Disclaimer: This article is for general informational purposes only and is not intended to provide legal, tax, or financial advice. It was generated with the assistance of AI and reflects the author’s general understanding of relevant business considerations. Nothing herein should be interpreted as specific advice or as a substitute for consultation with qualified legal or tax professionals. Readers are strongly encouraged to seek guidance from a licensed attorney or tax advisor before making decisions involving entity structuring, liability exposure, or compliance with Florida law. The author is not an attorney and does not provide legal services.