How are other landlords using their LLC’s

Question

I just registered my LLC and i want the income/cash flow that’s generated from my existing rental property to count as income to the LLC instead of myself.  Should I possibly have the tenant deposit rent payments into the bank account of the LLC?   If I do this will I run into any problems taking money out of the LLCs account to pay the the rental property’s mortgage?  I’m trying to create a trail which shows that the LLC is generating income in attempts to qualify for business credit to fund my future deals.  Thanks

Account Closed · Answer

@CJ M.  Thanks.

Peter M. · Answer

Tax wise the LLC is a pass through entity to you. Any future financing benefit you derive from this business will still require you to show you full tax returns to the bank. The rent money should be getting deposited into the LLC bank account and all bills paid out of it. No personal expenses should come from that bank account. But if you want to transfer money from your LLC to your bank account you can do that by either writing yourself a check or transferring the money online. Your CPA will classify it as a partner distribution (I think, I'm not a tax person). Since it's a pass through entity the rent money will add to your taxable income on your sch E unless you operate at a loss.

David M. · Answer

@Sharad Peterson

Co-mingling funds is the direct way to pierce the corporate veil of your LLC

If anything, you need to have the LLC legally in the process somehow.  It’s kinda silly..  perhaps have a contract between yourself and the LLC as some sort of “property Mgr.”  Then, the lease would be between the tenant and the LLC. The tenant would make the rent checks out to the LLC.

That’s one way that comes to mind, but there are some other angles to cover I believe. Talk to a professional how to structure this.  You need to treat the LLC like another entity.

Meanwhile, I don’t see how this is tax efficient...

Account Closed · Answer

@Sharad Peterson

If the property is not in the name of the LLC, you do not want to commingle funds. In other words, keep that rent in a seperate account.

David M. · Answer

Account Closed

I was a little quick on my last post...  It does depend also on how your leases are written.  I assume your tenants are leasing from you and NOT your LLC.  For the LLC to get the rents, the lease should be written between the LLC and the tenant.  Then, how is the LLC renting out a property that it doesn't own..  That's where you need to figure out an arrangement, i.e. contractual agreement, between yourself and your LLC.  In my layman's point of view, that would clean up the lines of privity.

David M. · Answer

Account Closed

Yeah, but that’s the screwy part.  Since it appears the properties are in his personal name, by sending the rents to the LLC it’s either co-mingling or no longer passive income. You can’t collect rent without a license as I recall.  Now, it’s active income to the LLC that passes through  to the Member as active income.  Meanwhile, I don’t know what happens to his SchE because both I don’t know and it depends on how he creates the contract arrangement between himself and his own LLC.

That being said, I guess since this isn’t for asset protection, just go ahead and co-mingle the funds and file your taxes as normal...  that’s one to go I suspect

That’s my additional two cents

Account Closed · Answer

@David M. That makes sense, write the lease out between the tenant and LLC and have a contractual agreement on the back end between myself and the LLC stating that the LLC is the property manager.  Just to be sure I’ll consult a CPA.  Thanks

Account Closed · Answer

@Peter M. Thanks Peter this was valuable info

Account Closed · Answer

@David M. Thanks, that makes a lot of sense especially due to the fact that I am managing the property myself.  And to answer your question about taxes, i want to build business credit and it’s my understandings that in order to do that the LLC needs to be able to prove that it is generating income.  My post didn’t  concern tax saving strategies. Thanks again

Brian G. · Answer

@Sharad Peterson I’m not. Consult your CPA.

How are other landlords using their LLC’s

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