Flipping Business and Rentals....Different LLCs?

Question

I am looking to meet with my account and figure out how I can avoid Uncle Sam's wrath.   I want a LLCs for my rentals, however should my flipping business be a separate LLC or the same?  I market to houses with my business name which I have registered, and I'd like to have an LLC for it.  However, I don't know how that would benefit me.  I'm trying to figure out where the lines are for my flipping business and rentals.  Some of the expenses would be part of the rehab for the rental, where marketing wouldn't be. Any guidance?

Bob Okenwa · Answer

This is something that should also be brought up to your accountant. Flipping is taxed as earned/active income and rentals are passive income.

The IRS classifies individuals who actively purchase and remodel real estate for profit on a continuing basis as dealers rather than investors. For these people, the real estate is treated as inventory, rather than capital assets, and the profits on the sale of those properties is treated as ordinary income and is subject to the self-employment tax.

Scott E. · Answer

I hold all of my house flips in an LLC

I hold all of my rentals in separate LLCs

Not a CPA or an attorney, but my understanding is that having separate entities spreads out the risk. In theory, a case against 1 of the LLCs would only be able to pursue that LLC. The other entities assets should be protected.

Annette Hibbler · Answer

If your main income is in flipping properties, then I would recommend you simply hold them in one LLC. There are several reasons for this:

- The properties within the LLC are constantly changing in and out as you sell them so you can avoid the risks generally associated with buy & hold rentals.

- Keeping them in one LLC is easier to track and your account will thank you.

- The more LLCs your accountant has to regulate each year, the higher his/her yearly invoice will be due come tax time.

As your business grows, there will likely come a time when you will start to file quarterly. Having just one LLC to keep track of is so much easier! Take it from me, we have multiple LLCs we have to file quarterly for every year.

Basit Siddiqi · Answer

The thing you want to avoid is the IRS looking at the LLC and also treating your long-term rentals that you just so happen to decide to sell to be also subject to self-employment taxes.Having two entities with two different intents helps with that.best of luck!

Flipping Business and Rentals....Different LLCs?

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