Best Wholesale Entity?

Question

I was considering using an LLC for my wholesale business, but it seems that I would have to pay capital gains tax and self-employment taxes with an LLC or a Sole Proprietorship.
            And, since I'm not investing, buying, and holding property then I won't really need the protection of an LLC.  A sole proprietorship is also cheap!
            
            Any thoughts?

Derek W. · Answer

Greg, if the offer is written under a trust and beneficial interest is transfered during escrow from me to the new buyer, then the house closes under the same trust, there has technically not been a transfer of property or a "wholsesale flip." So your wholesale fee would be a third party service fee (like a home inspector or termite company would charge during escrow) would that still be classified as a real estate transaction?

Greg Boots · Answer

Chris,

If you wholesale in your own name or even an LLC that is not taxed as corporation you run the very real risk of getting classified as a dealer by the IRS.  You should use a corporation for all transactions where the holding period is less than 12 months.

Rashard Alomari · Answer

what about a simple GP for nothing more than wholesaling? And purchasing a liability policy for added protection?

Chris T. · Answer

I consulted legal zoom who is creating the paperwork and since I caught them before they finished they were able to set it up as an scorp.  There are two members, my wife and I.

Actually, I think I had them set it up that way in the first place but they use different terminology then "S Corp election."  The options were pass through taxation or some other kind and I chose pass through originally.

Andrew O'Neill · Answer

LLC filing as an S corp is the way to go. consult your CPA

Derek W. · Answer

So for a person to wholsale an REO property, do you see this as the best option to get around the non-assignability of an REO contract?

Derek W. · Answer

Also remember LLC's are state specific, so check with your local State laws to see.

Greg Boots · Answer

If the transaction is simply a transfer of beneficial interest you are correct that the transaction would not be classified as a transfer of real property.  The transfer of beneficial interest would be treated as a personal property transaction and not technically a flip.

Nick J. · Answer

Chris, my LLC has an Scorp election.
you should consult with a really good CPA. Preferably a CPA who does investments themselves.
With the scorp I'm able to have more control over my SE tax....

Chris T. · Answer

Too late now!
However, corporations have too much maintenance for me anyways.
Maybe, I'll change my point of view down the road but I already sank my money into forming the LLC.

Thanks for your feedback and I will get with a cpa someday to discuss what you have brought up as far as dealer status.

I certainly don't want that!

Best Wholesale Entity?

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