LLC pass through profits

4 Replies

My question is regarding reinvesting profits back into additional property acquisition. If the money stays in the LLC does it still get reported as income that I will need to claim on my personal income tax? Sorry if this is unclear. This is my first time. :-)


@Russelin Kisiel

Yes, In general the fact you reinvest the money does not change the fact you need to report the income.

Some options

Create a "C" corp. it is taxed at a lower rate, so keeping money in may save you taxes vs paying it out. In general a C corp is not a good idea for real estate unless you have a very large operation and it is a poor way to title property.

Use an "S" corp. Some of the money that passes through to your personal return can be in the form of dividends which allows you to avoid some fica tax.

Do a 1031 exchange for a more expensive property. All your capital gain is deferred.

All of these options have pros and cons. Also the devil is in the details so you really should have a tax professional advising you here.

If you do a 1031 Exchange, you must use a Qualified Intermediary, and you must acquire replacement property that is equal to or greater in value than the property you sold, and you must reinvest all of your cash proceeds (assuming that you want to defer all of your taxes).

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