Transferring Cash between LLCS
Raven Ye MaharPro Member
New to Real Estate · New York, NY · Member since 2023 · 18 posts · 10 votesTransferring Cash between LLCS
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Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes
1yHi Raven,
First, while you can collect rents in the management LLC, in particular if you have a management agreement between the management LLC and the property holding LLC, this income would not general belong to the management LLC. Just like when using a third-party property manager, the rents belong to the LLC that owns the properties being rented. This wheels the management LLC could deduct a management fee from the rents, the reminder of the rents would ultimately belong to and be reportable to the property holding LLC. Failure to make this distinction will likely nullify any real legal separation or distinction between the two entities and may even negate any asset protection benefits provided by the LLCs.
Second, as long as the management and holding LLCs are disregarded for tax purposes (e.g. by being single member LLCs with no corporate tax election) then the holding and management companies can simply transfer the funds to the parent company. This should be classified as a "member draw" or "member distribution". These transfers are non-taxable again as long as the LLCs are disregarded.
It's also important to note that if all of the LLCs are disregarded then there are no taxes or tax returns for the LLCs. Income and taxes would simply flow down to the owners personal tax return. Again, this all rests on how each of these LLCs are taxed and my response assumes disregarded taxation on all LLCs.
10 Replies
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes1y
Hi Raven,
First, while you can collect rents in the management LLC, in particular if you have a management agreement between the management LLC and the property holding LLC, this income would not general belong to the management LLC. Just like when using a third-party property manager, the rents belong to the LLC that owns the properties being rented. This wheels the management LLC could deduct a management fee from the rents, the reminder of the rents would ultimately belong to and be reportable to the property holding LLC. Failure to make this distinction will likely nullify any real legal separation or distinction between the two entities and may even negate any asset protection benefits provided by the LLCs.
Second, as long as the management and holding LLCs are disregarded for tax purposes (e.g. by being single member LLCs with no corporate tax election) then the holding and management companies can simply transfer the funds to the parent company. This should be classified as a "member draw" or "member distribution". These transfers are non-taxable again as long as the LLCs are disregarded.
It's also important to note that if all of the LLCs are disregarded then there are no taxes or tax returns for the LLCs. Income and taxes would simply flow down to the owners personal tax return. Again, this all rests on how each of these LLCs are taxed and my response assumes disregarded taxation on all LLCs.
- New to Real Estate · New York, NY · Member since 2023 · 18 posts · 10 votes1y
Quote from @Ryan Coon:
Hi Raven,
First, while you can collect rents in the management LLC, in particular if you have a management agreement between the management LLC and the property holding LLC, this income would not general belong to the management LLC. Just like when using a third-party property manager, the rents belong to the LLC that owns the properties being rented. This wheels the management LLC could deduct a management fee from the rents, the reminder of the rents would ultimately belong to and be reportable to the property holding LLC. Failure to make this distinction will likely nullify any real legal separation or distinction between the two entities and may even negate any asset protection benefits provided by the LLCs.
Second, as long as the management and holding LLCs are disregarded for tax purposes (e.g. by being single member LLCs with no corporate tax election) then the holding and management companies can simply transfer the funds to the parent company. This should be classified as a "member draw" or "member distribution". These transfers are non-taxable again as long as the LLCs are disregarded.
It's also important to note that if all of the LLCs are disregarded then there are no taxes or tax returns for the LLCs. Income and taxes would simply flow down to the owners personal tax return. Again, this all rests on how each of these LLCs are taxed and my response assumes disregarded taxation on all LLCs.
Thanks Ryan, this was so helpful! They are disregarded entities, yes.
So, this would mean that I have to record and report the rental income in the holding llcs that own them? If I were to take your example of the third party property manager, the management llc could "act" as a property manager where it collects the rental income directly, deduct a management fee from the rents and take that as income for the management llc, and the remainder of the rental income will be redistributed and reported back on the holding llc that owns the property?In this case, is it crucial to have separate bank accounts for the holding llcs - even for each series? The holding company is a series llc with multiple series created underneath, each holding a property.
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes1y
You are correct in your synopsis of the management company taking the management fee then redistributing back to the holding LLC. It should be noted that while a management company taking a fee in some circumstances may offer some advantages, here where the management company is disregarded, you may actually be adding to your tax liability. This is because the management activity would likely be classified as active income thereby adding self-employment/FICA taxes (~15.3%) to what would otherwise simply only be hit with ordinary income taxes. Thus, while the management company is disregarded, taking a management fee may not be ideal for taxation.
As for separate bank accounts in your cells, having separate bank accounts in each cell can help support the argument that these cells are separate and distinct from one another. This is important from an asset protection perspective (assuming that your state provides asset protection and separation between cells) because it can help limit your exposure to a single lawsuit by only allowing the creditor of one property to go after the assets of that cell. Now, if your bookkeeping is really good such you can easily identify the income/expenses of each cell then you may be able to get away with having a bank account in just the series LLC without having bank accounts for each cell.
- New to Real Estate · New York, NY · Member since 2023 · 18 posts · 10 votes1y
Quote from @Ryan Coon:
You are correct in your synopsis of the management company taking the management fee then redistributing back to the holding LLC. It should be noted that while a management company taking a fee in some circumstances may offer some advantages, here where the management company is disregarded, you may actually be adding to your tax liability. This is because the management activity would likely be classified as active income thereby adding self-employment/FICA taxes (~15.3%) to what would otherwise simply only be hit with ordinary income taxes. Thus, while the management company is disregarded, taking a management fee may not be ideal for taxation.
As for separate bank accounts in your cells, having separate bank accounts in each cell can help support the argument that these cells are separate and distinct from one another. This is important from an asset protection perspective (assuming that your state provides asset protection and separation between cells) because it can help limit your exposure to a single lawsuit by only allowing the creditor of one property to go after the assets of that cell. Now, if your bookkeeping is really good such you can easily identify the income/expenses of each cell then you may be able to get away with having a bank account in just the series LLC without having bank accounts for each cell.
Understood! Would love to hear how you would approach this if you had this business structure set up? Would it make sense to use the Management to collect rent without charging a management fee and redistributing it to the series holding in the form of a owner's distribution and report the rental income on the series holding that owns the units? How would you approach this?
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes1y
Certainly. My approach would generally be something like the following:
Parent company set up in Wyoming for charging order protections and possibly anonymity in your ownership (if using a third-party registered agent and filler for the LLC). WY is known for having really strong asset protections, in particular charging order protections, to prevent personal liabilities from exposing assets inside the LLC. Parent LLC disregarded tax status (or partnership if owned with a spouse)
Real Estate Holding LLC (e.g. series LLC) owned by the WY Parent LLC. Here I would either have separate LLCs for each property or a series LLC with separate Cells for each property (this largely depends on the state where the properties are located and how much asset protection is provided to individual cells in the state in question). Separate LLCs or Cells for each property prevents liabilities on one property from exposing the others. The Real Estate Holding LLC(s) would be disregarded with the WY Parent LLC as the sole member.Then I would have a Management Company, taxed as a C-corp and owned directly (not via the Parent LLC). The idea behind the C-corp is to use it as a tax mitigation tool. There are a number of tax free reimbursement that you can get from a C-corp including business expense reimbursements and, very powerfully, medical expense reimbursements. This means that if you can get money into the C-corp, the C-corp can turnaround and reimburse you, tax free, for all of your out-of-pocket medical expenses (e.g. deductibles, co-pays, insurance premiums, etc.).
So the question then is how do you get money into the C-corp? This is where the management fee comes in. The Real Estate Holding LLCs can execute a property management agreement with the Management Company allowing the Management Company to manage the rentals and take a management fee for these services, say 10% of the rental income or whatever the standard is in your area. You do want to be careful not to over-fund the C-corp though because best case scenario usually involves you zeroing out the C-corp so as not incur corporate or other taxes trying to get money from the C-corp. The balance is in getting just enough money into the C-corp to optimize tax-free reimbursement from the C-corp and no more. Thus, you can effectively get somewhere in the ballpark of 10% of your rental income to you tax-free through these reimbursements, rather than paying ordinary income tax rates on this income. This does require some careful planning but can save you substantial amounts on your taxes.
Now you can have the Management Company owned by the Parent LLC, however doing so will likely negate any anonymity (if that is a goal) and doesn't create quite as much separation between the rental properties and the management activities.
- MN · Member since 2025 · 107 posts · 97 votes1y
Hi @Raven Ye Mahar,
@Ryan Coon has provided some excellent points regarding the legal structure and potential asset protection strategies from an attorney's perspective. His insights on disregarded entities and member distributions are spot on.
As a CPA, I wanted to chime in primarily on the tax and operational accounting side, and offer a general word of caution against creating overly complex structures unless absolutely necessary. While I appreciate the detailed planning involved in the structure Ryan outlined, and I certainly can't speak fully to the legal protection side, it's worth noting that I work with numerous real estate investors and developers, some managing portfolios in the $100M-$500M AUM range, who often utilize less convoluted entity structures than the multi-layered parent/holding/C-corp management setup described. Complexity can sometimes introduce unforeseen operational friction and administrative costs.
Specifically regarding the management company entity choice:
C-Corp vs. S-Corp: Ryan mentioned using a C-corp for the management company, potentially for tax mitigation strategies like medical expense reimbursements. While this can be a valid strategy in specific circumstances, it's crucial to be aware of the potential for double taxation with a C-corp. The corporation pays income tax on its net profit (first layer of tax), and then if those profits are distributed to you as dividends, you pay tax again on those dividends at your individual rate (second layer of tax).
Often, for a management company primarily servicing related entities, an S-corp can be a more tax-advantaged choice if a corporate structure is desired. An S-corp is typically a pass-through entity; the net income or loss is "passed through" to the owner's personal tax return, avoiding the corporate-level income tax. While S-corps come with their own rules (like needing to pay reasonable compensation to owner-employees), they generally avoid the double taxation inherent in the C-corp structure for distributed profits.
On the accounting and operational side, particularly regarding the Series LLC and bank accounts:
QuickBooks with Class Tracking: Maintaining separate bank accounts for each property or Series LLC cell certainly helps demonstrate separation, but it can become administratively challenging very quickly. I highly recommend using a robust accounting system like QuickBooks Online. By upgrading to a version that includes "Class Tracking," you can achieve the necessary financial separation without needing dozens of bank accounts.
Trust Accounting Principles: With Class Tracking, you can run operations through fewer accounts (perhaps one for the management entity handling inflows/outflows and one main account for the holding entity). Every single transaction (rent income, expense payment) is tagged to a specific "Class," which you would set up for each property/Series cell. This effectively creates internal "trust accounting." You are holding funds that belong to specific properties (Classes) within a commingled bank account, but your accounting system provides crystal-clear, segregated reporting for each one. This method provides the distinct financial records needed to support the legal separation of the cells just as effectively as separate bank accounts, but far more efficiently. Virtually all high-level, large-volume property managers use this trust accounting methodology rather than juggling separate bank accounts for every single property.
Simpler Alternative Considerations:
Be mindful that overly complex structures aren't always necessary. For many investors, a structure involving:
A Holding LLC (like your Wyoming parent).
Separate single-member LLCs for each property (or each Series within a Series LLC), all owned by the Holding LLC and treated as disregarded entities (DREs) for tax purposes.
A Management LLC, which could also be a DRE owned by you or the Holding LLC.
This simpler structure often provides significant asset protection (isolating liability to the specific property LLC) and simplifies tax reporting (as all income/expense flows up to the Holding LLC and then potentially to your personal return if the Holding LLC is also disregarded or a partnership).
Unless your management company is intended to generate substantial profit on its own (e.g., managing properties for unrelated third parties and earning significant fees – perhaps >$150k annually), designating it as an S-corp or C-corp might be overkill. If it's primarily self-managing your portfolio, it might have very little taxable profit itself, potentially just charging enough of a management fee to the property-owning LLCs to cover its direct operating expenses (like software, admin costs, etc.).
Every situation is unique, but starting simpler and adding complexity only when clearly needed is often a sound approach.
Feel free to DM me if you'd like to discuss accounting setups or tax planning strategies in more detail!
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes1y
@Dylan Brown brings up an important issue of determining your balance between simplicity vs complexity in your structuring. I agree that for larger real estate portfolios, bank accounts in each LLC/Cell/Series can become quite cumbersome for many investors. In this case comprehensive and meticulous bookkeeping, in particular through something like QuickBooks, can go a long ways to mostly maintain the legal separation between entities while cutting down on the administrative burden of managing many bank accounts. With great bookkeeping and no major separation issues with the individual LLCs, such as comingling assets, then the lack of a bank account is unlikely to undermine the asset protections provided by the separation.
I do think it's worth clarifying that, if carefully planned, the use of a C-corp as a management company need not incur much, if any, corporate taxation or dividends taxation, thereby avoiding both ends of the double-taxation problem of C-corps.
Example: If your C-corp collects management fees, lets say $10k worth, but you have $10k worth of expense reimbursements including medical expenses, then the C-corp can reimburse you for these expenses, thereby zeroing out the C-corp. By doing this you negate any Corporate taxes (no profits to tax) and any dividends taxes (no money to distribute as dividends). Thus, rather than adding taxation you are mitigating ordinary income taxes on the $10k that you would have paid had these funds simply hit your tax return as rental income. This does require some reverse-engineering to fund C-corp with as much as possible to take reimbursements without overfunding it. Now overfunding is not the end of the world, because you could take a salary from the C-corp for a reasonable amount, and the salary will be a deduction to the C-corp (mitigating corporate taxes), but will be taxable as a salary.
This strategy is certainly not for everyone, but I have worked with many investors who have saved substantial amounts on taxes with this strategy with some careful planning. Thus, it's certainly worth consideration if you have a taste for creative tax planning.
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Raven Ye Mahar If the LLCs in your structure are single-member LLCs (SMLLCs) and all disregarded entities for tax purposes, then the income from both the Holding LLC and Management LLC ultimately flows through to your individual 1040 tax return. In this case, rental income should still be reported by the Holding LLC, since it owns the properties, not the Management LLC. However, the Management LLC can legally charge a management fee to the Holding LLC for services provided (e.g., leasing, maintenance), allowing income to flow between entities while staying compliant.
Once the Management LLC collects those fees, transferring funds to the Parent LLC typically does not trigger additional tax, as long as all entities are disregarded and owned by the same individual. These are simply internal equity transfers, not new income. That said, be sure to document all intercompany transactions properly for audit protection.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews- Chicago Area, IL · Member since 2024 · 54 posts · 49 votes1y
Following this thread with the back and forth between a CPA and an attorney has been interesting.
The management LLC may provide the entity for employment. Income to the owner, as well as to a spouse, children, or others employed in the business. It would enable financial benefits that are more difficult as a self-employed person, such as insurance, and tax deferred plans.
If you have other businesses, such as a storage facility, or a retail store, would it make sense to have a separate employment LLC that acts as a temp agency for the other businesses? That way you could separate the expense if an employee works for multiple businesses, while retaining the benefits of a single company. Such as payroll services.
Granted that this would be more complex than needed for simple property management, but wondering if the benefits outweigh the complexity.
- Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes1y
@Dave Hagen Your idea of having an entity function as a "temp agency" or "management services" of sorts is an interesting one and could possibly work as long as you cover your bases in terms of having appropriate management/services agreements in place to justify the relationship between the entities. Failure to have the proper documentation can both breakdown the asset protection benefits of the entities (as it could create comingling problems) and could get you into trouble with the IRS, so proper documentation to justify the arrangement as a common or reasonable arms length transaction cannot be overstated.
Then, this entity could sponsor a retirement account, such as a 401k and could make employer matching contributions (be sure to work a CPA/tax advisor to guide you through rules and limits of both individual and employer contributions to the plan), and otherwise provide a centralized entity to run employment related expense, payroll etc. However, I'm not sure whether in the end the juice will be worth the squeeze so you'll have to take a look at what goals and priorities are.
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