For taxation purpose, how would this work? My 'Holding company X' in WY has two LLCs registered in IL, One of them is in active rental - STR, and another holds assets in a LTR business. I know that the 'Holding Company X' files tax returns, but all of it will flow through to my wife and I. But how would it separate active vs. passive? Is it possible to do that on form 1065?
Should I have two WY holding companies instead, one for passive and one for active?
@Raj Chacko. I've always separated entities by income type.
Can you combine? I suppose its possible. Sch 8825 for passive, then ordinary/self employment income seperate. But your k-1 will have material amounts in box 1 and 2. Not normal.
These better question is Should you combine. I lean toward no.
You should talk to your tax guy but I have my wy company that owns my IL purchase/rehab properties and that is a series llc and each property is individually held in a series leg when everything is completed and refinanced. For tax purposes all the LLC's pass through to me and my wife. Not saying it's correct but it's the structure I have right now. I get issues with financing sometimes but I make it work.
You should talk to your tax guy but I have my wy company that owns my IL purchase/rehab properties and that is a series llc and each property is individually held in a series leg when everything is completed and refinanced. For tax purposes all the LLC's pass through to me and my wife. Not saying it's correct but it's the structure I have right now. I get issues with financing sometimes but I make it work.
Darrell, does everything flow to your WY LLC and then to you? or Do you register an EIN with every series leg (or master llc) and have the WY LLC purely for holding?
You should talk to your tax guy but I have my wy company that owns my IL purchase/rehab properties and that is a series llc and each property is individually held in a series leg when everything is completed and refinanced. For tax purposes all the LLC's pass through to me and my wife. Not saying it's correct but it's the structure I have right now. I get issues with financing sometimes but I make it work.
Darrell, does everything flow to your WY LLC and then to you? or Do you register an EIN with every series leg (or master llc) and have the WY LLC purely for holding?
They all have their own ein. Lenders require them to have ein’s. Wyoming just owns and everything flows through it. Main llc in IL I purchase my brrrr projects and hold it in there while it’s being rehabbed so need ein for that to get the loan, then when I cash out refinance I put it into its own series leg and lender needs that to have an ein for that loan. Good thing the ein’s are free but they all pass through to my wife and I as the wy represents us if that makes sense. But I’m not doing str and ltr so may need to possibly have a main IL llc that owns the Str llc and ltr llc. Series may be beneficial especially since you want to be taxed differently for those 2 things. Yeah definitely talk to a tax professional that specializes in real estate and knows all those and maybe even an asset protection attorney who understands the ins and outs of setting up the structures. There’s so many laws and loopholes that you don’t want to mess this up.
Thanks Darrell! So to clarify, in your case, do you have to file tax returns per EIN? which flows to the WY LLC, which also files a tax return and that eventually flows to your joint 1040?
Yes but they each pay to the one above so I get paid from wy, and down the line. For you wy still represents you. So all your llc’s would pay wy and wy pays you.