LLC for Tax purposes on Rental property.

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LLC for Tax purposes on Rental property.

Stephen Coady
Member since 2019 · 3 posts · 0 votes

Any help is appreciated.  I have just put in an offer on my first townhouse in Birmingham, AL.

In the event that it moves forward, I was hoping to get some advice on how to bank my rehab expenses and income. I already have an LLC set up from a previous small business I owned but it is currently inactive.

Should I put all of this under an LLC or Personal? Pros and cons to each?

Thanks,

Stephen

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
7y

There is literally no tax difference. 

If you QC it to your LLC your bank could potentially call your loan.

Also, I'm not an attorney so check with one- but it you recycle that old LLC any liabilities related to it are still open. So for example if someone sues your old company they have access to your rental is my understanding.

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    7y

    There is literally no tax difference. 

    If you QC it to your LLC your bank could potentially call your loan.

    Also, I'm not an attorney so check with one- but it you recycle that old LLC any liabilities related to it are still open. So for example if someone sues your old company they have access to your rental is my understanding.

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    3Reply
  • Stephen Coady
    OP
    Member since 2019 · 3 posts · 0 votes
    7y

    Thank you!

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y
    And any LLCs need to be split up between "active" and "passive". Your business LLC was likely active, since the work you did in it was active, and rental property LLCs need to be passive. There's a difference.

    Here's more on whether or not to do the LLC (my vote is no)-

    https://www.biggerpockets.com/...

    1Reply
  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    @Stephen Coady I'll agree with the others. Intil you are forced to get into commercial loans (after you've maxed out personal loans), there's not really much if any benefit of an LLC.

    Make sure you get an umbrella insurance policy. It’s an inexpensive policy to protect all your assets up to $1M+.

    2Reply
  • Jeremy White
    Accountant · Greensboro, NC · Member since 2015 · 22 posts · 10 votes
    7y

    I agree with the others. LLC in general isn't beneficial (talk to an attorney to confirm for your scenario), don't use a prior LLC, and definitely get the umbrella policy on top of the regular liability on the property.

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