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Multiple rental properties LLC? S Corp? CPA recs in Texas?

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  • Multiple rental properties LLC? S Corp? CPA recs in Texas?

    Happy New Year!

    I have some rentals in Texas and would love to hear your pros and cons regarding establishing an LLC or S Corp.

    Also, any recommendations for a Real Estate Investing savvy CPA would be greatly appreciated.

    cheers!

    UPDATE: should have mentioned no mortgages on these rentals, I qualify and file taxes as a Real Estate Professional, and seeking a Texas based CPA or Tax professional who can establish whichever solution is optimal (LLC, S Corp, or something else) because that is where the properties are AND where I reside.
    Last edited by GogglesandScarf; 01-03-2021, 06:42 AM.

  • #2
    I don’t think you necessarily need a LLC to own rental properties. The only real advantage is asset protection, and you can cover that with umbrella insurance. But many do organize their rental properties inside a LLC structure. It would be perfectly fine. There are some modest additional expense and state administrative requirements. I personally consider managing the mortgage with the need to retitle the property inside the LLC to be cumbersome.

    I’ll go out on a limb here and say there is no advantage to using a S Corp for owning real estate. They are complex and the administrative burden high. The main reason owners consider them for a business structure is the advantage in reducing salary (by taking owner equity instead) so as to reduce self-employment taxes. But real estate generates passive income that is not subject to self-employment tax anyway.

    As for a CPA for real estate in Texas, I observe these days you can search nationally because the consults are virtual. But if you want someone local, ask other owners, or go to a local landlord association and get several names. Then interview a few and pick the one you like best. I’d make sure they can walk you through establishing cost basis, bonus depreciation, which currently expires in 2022 so lock it in, and tax deferred exchanges to avoid depreciation recapture.

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    • #3
      A corporation, in general, should never be the choice for real estate unless except for expediency (publicly-traded entities, for ex).

      Your choice is between buying PUP (Personal Umbrella Policy) insurance and owning the property inside an LLC. If LLC, then you are fortunate to be in a state offering Series LLCs.
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Originally posted by jfoxcpacfp View Post
        Your choice is between buying PUP (Personal Umbrella Policy) insurance and owning the property inside an LLC. If LLC, then you are fortunate to be in a state offering Series LLCs.
        On the other hand, California taxes each unit of a series LLC as if it were a stand alone LLC, charging $800 per year minimum for each unit / LLC.

        Even if you choose to pay the sunshine tax and live in a desirable, high tax state like California, Hawaii, or New Jersey (wait a minute!), it still may make sense to have investment real estate in a state like Texas. No state income tax, relatively easy evictions for deadbeats, and potentially favorable rental income to mortgage service ratios. Sure, the property taxes are relatively high in percent terms, but housing prices are more reasonable than on the East or Left Coast.

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        • #5
          Maybe this question is better posed over in the tax section?

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          • #6
            The section doesn’t matter. All posts show up under “recent.” There have not been more replies because there is not much more to say. S Corp is wrong. LLC is personal preference. Umbrella insurance is practically mandatory. Just in case you did not do a search on WCI, here is the bedrock post. https://www.whitecoatinvestor.com/pu...roperties-llc/

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            • #7
              Originally posted by Larry Ragman View Post
              The section doesn’t matter. All posts show up under “recent.” There have not been more replies because there is not much more to say. S Corp is wrong. LLC is personal preference. Umbrella insurance is practically mandatory. Just in case you did not do a search on WCI, here is the bedrock post. https://www.whitecoatinvestor.com/pu...roperties-llc/
              Well my questions is primarily how to minimize the ongoing tax impacts of these properties and offset other income streams from taxes, not necessarily insurance or lawsuit related which seems to be the thrust of most of the information.
              Last edited by GogglesandScarf; 01-04-2021, 07:03 PM.

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              • #8
                The forum can only try to answer the questions you ask. I’lll come back to effective tax set ups in a moment. But it seems as though you are trying to solve management and tax issues with an organizational structure. The reason the answers have been about liability protection is because LLCs are pass through entities. They do not provide tax benefits. S corps are worse. They add significant cost and tax burden without sheltering passive income from a tax perspective.

                Your real estate professional status is actually the key to effective tax management of your properties and integration of your passive income with your earned income. It allows you to use real estate losses like depreciation to offset earned income. I’ll say it again. An LLC is irrelevant to this issue.

                By the way, the search function on WCI can help you quickly track down past discussions. I prefer the function on the main page as the one here on the Forum does not seem to promote the blog posts. Here are two.

                This one by Stephen Nelson (Washington State, but as I said that doesn’t matter) discusses real estate professional status. https://www.whitecoatinvestor.com/te...ate-investors/

                And just for fun, thus one discusses cash flow maximization. https://www.whitecoatinvestor.com/ma...and-cash-flow/

                Ok, if you still want someone local to talk to, you are going to have ask locally. I already told you questions I think will help elicit whether or not a CPA is also a real estate ‘guy.’ But you really could contact Johanna, who answered the question you originally asked above, Stephen, who I linked, or any of a number of accountants and planners in WCIs recommendations section and set up a virtual appointment. Don’t be surprised if you have to wait until after tax season.

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