What is the best business entity for real estate with rental income?
I’m currently setup with an LLC on my rental properties. I want to keep the liability protection of an LLC, but have the ability of the business entity to file its own tax return and pay its own taxes while still taking advantage of the normal depreciation write offs and everything else. I want to be president of the business entity while taking a “0” salary. Essentially I want any and all rental income to show under the business while I merely control it taking absolutely no income or salary personally.
July 7th, 2010 at 10:44 am
I see absolutely no benefit of an LLC on rental property. If you are worried about liability or getting sued purchase a good all-inclusive umbrella policy. I keep one umbrella policy that covers my personal residence, my vehicles, and my residential and commercial properties that is a whole lot less expensive that going the corporation route. IMO
I use Personal Umbrella.com. (Navigators)
You can get coverage from $1,000,000 to $5,000,000 and the cost is reasonable.
No hassle with filing corporate tax forms, paying any corporate taxes. I just list all my rental incomes and business on my regulator tax return. Plus it often helps offset my earned income which lets me pay lower income tax.
I would put the properties in a Revocable Family Trust.
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LLC’s are good for one thing only, to protect you personally from lawsuits. If you have adequate liability insurance for your real estate properties LLC’s are a needless hassle and expense. Besides is is not that difficult to pierce the corporate shield in many cases. Lawyers and CPA’s love them because they are cash cows for their practices. They require costly start-up and year after year maintenance fees. In many high risk professions LLC’s are a good idea, but in the rental business it is a needless expense and pain in the butt. I’ve had both commercial and residential rental for 35 years and never even came close to needing a corporate shield for protection.
July 7th, 2010 at 10:59 am
my peer disagrees with me. IN AZ, we prefer LLCs for the acquisition of RE.
ask your CPA!!
July 7th, 2010 at 11:51 am
You have the correct idea about the use of an LLC or other legal entity to protect yourself from potential legal problems. You may also pass this legal entity to your heirs or sell it as one as oppose to each individual property.
You might have to transfer the title deed to the LLC even though you are personally responsible for the monthly mortgage payment. Eventually the LLC will be able to qualify for mortgage programs as the LLC get stronger and is able to prove income and assets.
You would have to make sure that the LLC books and other legal things are kept current and separate from you personally. A good CPA would be instrumental in assisting you in doing this.
You may chose to give the president a salary, defer salary or no salary as you indicate.
A LLC protect you from potential legal problems even though you might have plenty or insurance. Having insurance do not protect you from potential lawsuits.
The LLC may file a separate income tax, take the depreciation or you may pass it through.
For tax and legal matters you should always consult with your tax consultant and attorney.
I hope this has been of some benefit to you, good luck.
“FIGHT ON”
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