S Corp Or LLC For Holding Rental Property
We are taking property in a land trust "subject to" so we have ownership. We are looking to turn these properties into rentals for a 5 years hold then sell. What is the best way to hold them for depreciation and tax perposes? What gives us the best protection?
Thanks
Sire
Couple thoughts for you...
1) Consult your lawyer or accountant.
2) My experience is that most of them (lawyers and accountants) are saying that S corp is better. Depreciation is equal and tax deductions are equal. Problems with LLC is that you have capital gains tax and most banks don't want to lend to an LLC - especially one with no money of it's own.
Buy and sell in an "S" Corp. The income
flows right thru to you personally.
Keep your rentals in a different Land Trust for each property. If you have all
your properties in an LLC and you are
subject to litigation, if they penetrate the
corporate shield they can attack everything. You could set up a different LLC for each rental, but do you know what that means in terms of keeping your corporate minutes and annual meeting, shares, etc... for each property.
I think if you have only one rental property, then an LLC is OK. However with multiple, I would not put them all in
there. You need to also get an umbrella
policy for personal protection.
The most important thing is not to keep
all your troops in one fox hole!
This has been a topic of debate for years. I have a top notch accountant
and attorney and this is what they have
advised me to do.
Good Luck,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 01/21/2004 ]
[ Edited by JeffreyAdam on Date 01/21/2004 ][ Edited by JeffreyAdam on Date 01/21/2004 ]
A tax attorney in NJ explains that the LLC is best liability protection. Also purchase a "umbrella policy" for your personal protection. Anything in the LLC where the property is will be subject to an liability lawsuit from that property. S and C corps regularly have stock holders and officers being held liable during ****Must Reach Freshman Investor status before posting URL's*** with a LLC for better protection that then C or S corp. If there is alot at risk here, get a pro to tell you!
S Corporation or LLC, has been a question that re-appears all the time on this board. I beleive the simple answer is: Depends on what are your plans!
What is an LLP? It's an alternative form of a partnership that have corporate protection umbrella built in. Most of the real estate ventures and development groups keep their business as LLC because alike basic partnership, it is simpler to define and sell the ownership stakes. You can also have more then 10 investors, which is not the case with S Corp. Like in an S Corp. profit flows directly to partners so in that respect they are equal.
Another negative aspect of the S Corporation is that if you want to sell the stake of the ownership, you have to sell stock and that brings complicate corporate lows and potentially even the SEC into the game. LLC splits and sells are just simpler to be done.
One thing is for sure, land trust or simply called "trust" is the best way to keep each individual property in for privacy protection. Among the trust beneficiaries can be your S Corp. or LLC. And that I call the more elastic and safer way of doing REI business. Group of properties can also be placed in living trust so in that respect you even do not have to form any business entity except for a "dangerous mine" the IRS has set for "Real Estate Dealers", a law that practically strips you off all your RE related deductions otherwise aimed for individual owners.
Now for California, I heard that there were some changes in law covering land trust (????) if somebody knows more about that, please post the comment.