I purchased a single-family home last year as a rental property and have been managing it on my own with assistance from a family member. A new CPA did my taxes this year and asked why I did not register my property as a S Corporation. Frankly, I didn't know what a S Corp was and I'm not too sure what the benefits of having the property in a S Corp are. I'm seeing mixed information online. Any advice? Thanks in advance!
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I hate to say this, really I do, but that CPA is Clueless (yes, with a capital C).- Appreciating assets (typically real estate) does not belong in a corporation
- An LLC would be fine, preferably a SMLLC so you can just file on a schedule E
Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087
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- A Single Member LLC is an entity that has asset protection, but is treated as a “disregarded entity”, which means it is reported on your tax return just as if you did not have the LLC.
- An S-corp cannot be treated as a disregarded entity. You have to file a separate return for it. You have to set yourself up as an employee. And, should you decide to dissolve the S-corp or just distribute property (the house, in this case) to yourself, you will report income and pay taxes on any unrealized gain, even though you technically still own the property. It is just in your personal name now instead of the corporations’s name. That is called “phantom income”, which means you pay tax on money you did not receive.
Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087
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jfoxcpacfp what about setting up investment real estate in a trust and the trust paying out to the trustees?
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Originally posted by Brains428 View Postjfoxcpacfp what about setting up investment real estate in a trust and the trust paying out to the trustees?
I’m probably not the one to be having this conversation. Maybe because I’m not selling anything, maybe because I’m naturally skeptical and highly protective. I realize the below strays far from answering your question and all you need to read comes before this paragraph. Just a warning that a rant follows - and it is absolutely NOT directed at you personally:
This OSFA real estate and “passive income” talk is being bandied about so much lately that it almost makes me think it’s the current iteration of the granddaddy of all “sales” strategies: whole life. But it is being sold to doctors in a far more genteel, selective fashion, making sure they understand that not just anybody will be allowed to buy the product. Only those who have earned $200k/yr for the last 2 yrs (or $300k, if married). Or have a net worth of $1M. Hmmm, know any group of professionals who might fit that profile (other than politicians at the national level)??? Wow, even new attendings with a negative net worth of a cool million can buy a ticket - can’t imagine why anyone “qualified” would want to pass that up. Can you?Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087
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It is more of a prelim question because my brother in law and I are looking to invest in multi family rental or flips. We'd be going in 50/50, but probably not until later this year to early 2021. Since we have the time to think about the tax and liability planning, and it came up here, I figured I'd ask.
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Originally posted by Brains428 View PostIt is more of a prelim question because my brother in law and I are looking to invest in multi family rental or flips. We'd be going in 50/50, but probably not until later this year to early 2021. Since we have the time to think about the tax and liability planning, and it came up here, I figured I'd ask.
Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087
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Originally posted by Rammd13 View PostOne more followup question: could I purchase umbrella insurance instead of registering as a SMLLC? Any advantages of one over the other? Thank you!. Not getting into a side2side rundown here as that could run into a whole blog post. Do your research or go over it with your CPA. Preferably one who is open-minded and with the self-confidence to discuss fairly as opposed to running through the party line of what the practice “typically” recommends.
Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087
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Originally posted by Steven Podnos MD CFP View PostJust an additional thought. Not every state recognizes a single member LLC as having asset protection qualities (Florida does not). So definitely check the laws of LLCs in your state with a competent attorney.
On WCI we may be critical of insurance agents for selling products that benefit the agent more than the client most of the time (permanent life insurance, high fee annuities, etc...). However, a good independent insurance agent can be a great asset to a small business owner. No business entity is a panacea for risks, liability and asset protection.
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