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S Corp for Rental Home

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  • spiritrider
    replied
    Originally posted by Steven Podnos MD CFP View Post
    Just 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.
    I would add that in some states, the limits on liability protections for SMLLCs is based on court precedent and not the actual law. So sometimes it is a little bit of a challenge to verify.

    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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  • Steven Podnos MD CFP
    replied
    Just 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.

    Leave a comment:


  • jfoxcpacfp
    replied
    Originally posted by Rammd13 View Post
    One more followup question: could I purchase umbrella insurance instead of registering as a SMLLC? Any advantages of one over the other? Thank you!
    Yes, absolutely (see my answer #9 above). It comes down to personal preference and what the lawyer advises. 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.

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  • Rammd13
    replied
    One more followup question: could I purchase umbrella insurance instead of registering as a SMLLC? Any advantages of one over the other? Thank you!

    Leave a comment:


  • jfoxcpacfp
    replied
    Originally posted by Brains428 View Post
    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.

    Then I’d probably recommend an LLC. You would file as a partnership and results would be reported on your individual K1’s. Alternatively, you could consider umbrella insurance but setting up an LLC is the standard. Depending upon the state, you might be able to use a series LLC for multiples rentals. Probably wouldn’t recommend for flips.

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  • Rammd13
    replied
    That's really helpful, thank you!

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  • Brains428
    replied
    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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  • jfoxcpacfp
    replied
    Originally posted by Brains428 View Post
    jfoxcpacfp what about setting up investment real estate in a trust and the trust paying out to the trustees?
    Way too much complexity for single-family real estate, for starters.. Just curious - for what purpose? I sincerely want to know this.

    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?

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  • Brains428
    replied
    jfoxcpacfp what about setting up investment real estate in a trust and the trust paying out to the trustees?

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  • jfoxcpacfp
    replied
    • 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.
    Hope that helps - and welcome to the forum!

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  • Rammd13
    replied
    Thank you for your reply. Would you mind explaining the different between a S-Corp and a SMLLC? I'm not really well-versed in these topics, so any education would be greatly appreciated! Thank you!

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  • jfoxcpacfp
    replied
    I hate to say this, really I do, but that CPA is Clueless (yes, with a capital C).
    1. Appreciating assets (typically real estate) does not belong in a corporation
    2. An LLC would be fine, preferably a SMLLC so you can just file on a schedule E
    My advice would be to find a new CPA next go round.

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  • Rammd13
    started a topic S Corp for Rental Home

    S Corp for Rental Home

    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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