Discussion:Entity selection for rental properties.
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Discussion Forum Index --> Tax Questions --> Entity selection for rental properties.
| 20 August 2007 | |
| Is there any consensus on the best entity for residential rental properties? Retired husband and wife actively participate and looking for liability protection. If LLC -- is income subject to SE tax -- must pay members for time spent? | |
| August 20, 2007 | |
| LLC is consensus hands down. Disregarded I think under the new law, so merely Sch. E filing. Either way, not subject to SE tax, but liability protection. | |
Corptaxhelp (talk|edits) said: | August 20, 2007 |
| No question: LLC unless that entity type is unavailable. | |
Corptaxhelp (talk|edits) said: | August 20, 2007 |
| Since LLCs are pass-through entities (or, for SMLLCs, disregarded entities) only United States tax payers can be LLCs.
I run across property held in C corporations because the owner is a foreign high net worth individual and wants asset protection but can't drop the property into an LLC. There are a number of celebrities who are not US citizens and own their personal, multi-million dollar American home (or homes) in a C corporation. Given the US dollar's low value and our slumping real estate market, foreigners are picking up US real estate at bargain basement prices and sticking it in LLCs owned by their C-Corps. Given the discount at which they are picking up the real estate, they aren't as worried about the c-corp consequences as they might have been a few years ago. | |
Cestrobeck (talk|edits) said: | 20 August 2007 |
| Also depends on what they're going to do with the property (for tax purposes) -- hold for longer than one year (i.e. renting), best is the LLC because of the ability to take more losses than your investment in the entity. If they're "flipping", holding less than one year, the Scorp is the way to go. Then you can also incorporate payroll for the owners and possibly get some of the income FICA-tax free. | |
Www.cpa1.biz (talk|edits) said: | 20 August 2007 |
| WIth this LLC rental structure, do you just prepare the Sch E. normally for each property or put them all in one group of numbers? | |
Cestrobeck (talk|edits) said: | 22 August 2007 |
| Each property has it's own P&L if you're just using the Sch E or 8825 for pnrship. Also, there are some out there who recommend creating an LLC for every property owned. In my opinion, this is cumbersome, especially if you are filing partnership returns for each entity (which doesn't apply to your case). I generally put three properties in one LLC, and then create another for the next three, and so on. | |
| 22 August 2007 | |
| If the husband and wife convert their home which they have owned for more than two years into a rental property, then transfer that property into an LLC, can they still get the section 121 exclusion if the 2 of 5 years is met? Also, if the gain on their home is large, say 1.5 million, can they get the $500K 121 exclusion and then defer the remaining 1 million with a deferred exchange? | |
| 22 August 2007 | |
| In California there is a min $800 annual fee for a LLC plus possibly an additional tax return needed to be prepared. Still worth it? Insurance will cover liability. | |
| 22 August 2007 | |
| Great question DZCPA! Even if you have an LLC you still need enough insurance so that if you are sued, your insurance company will pay for your legal bills. I ususally mention this to the clients but don't press it since I am not a lawyer. | |
