Reinvesting LLC profits into RE

5 Replies

I currently have an LLC with another partner. We generate income through web and mobile consulting services. Is there anyway to reinvest that income into real estate as that LLC? What I'd like to accomplish is to be able to be negative or at least $0 income on paper on the buy and hold investments to help reduce the income (and taxes of course) of the LLC.

Would this be possible? How can I go about doing this?

Are there better options to save on taxes? I've been looking into solo 401k, but am still not 100% clear on that. Maybe that would be an option?

Might consider a SDIRA, let it invest in RE.

Depends on the tax election you took for your LLC.

@Steven Hamilton II  is our tax guy.

You shouldn't really invest retained earnings in RE inside your current LLC, IMO. Most likely it would be seen as running an unlike business operation not in line with the Articles of the Incorporation of the LLC, the purpose of the business would be acting outside its intended and stated purpose.

Now, you'd have no issue with that if you were investing in company owned property that was to be used to further that business mission, such as owning the company office.

It could be more complex, you might have a parent entity that owns two subsidiaries one in communications and another in real estate and consolidate earnings.

See you attorney and tax advisor.

You may need to change your tax elections.

Another area, with unrelated partners you might consider funding a buy-sell and key man agreement with insurance, you can obtain life insurance on each partner as a business expense, the policies being owned by the company.

You can also have a 401K and more than one IRA, additionally, the company can fund a retirement account, golden parachute, consider a Sub-S and C Corp for your current LLC business, a C Corp has issues with real estate as to gains, so again, see your tax advisor.

:)    

Originally posted by @Wilson Lin :

I currently have an LLC with another partner. We generate income through web and mobile consulting services. Is there anyway to reinvest that income into real estate as that LLC? What I'd like to accomplish is to be able to be negative or at least $0 income on paper on the buy and hold investments to help reduce the income (and taxes of course) of the LLC.

Would this be possible? How can I go about doing this?

Are there better options to save on taxes? I've been looking into solo 401k, but am still not 100% clear on that. Maybe that would be an option?

 You will pay tax on that income.  Honestly look for the best returns you can even if it generates taxable income. I'd rather make more money and pay tax on it than to try to not pay more tax.  I'd rather make 2k and pay tax on 1/2 of it than to make 1k and not pay tax.

You will not be able to reduce your income from the LLC unless that LLC held the real estate. Either way I would be careful to not keep both assets together (RE and your business).
Solo 401ks are my preferred investment Specifically the Roth 401k.

Feel free to ask if you have detailed questions. 

Not sure about the most practical approach on your side of the line, but when we started our real estate {ad}venture, we took a chunk of retained earnings from our software company and funded a separate entity for real estate.   

The software company holds debt and preferred shares in the real estate company.

How did you make the decision for debt versus equity investment in the subsidiary LLC of the software company.

I'm essentially doing something identical, except that I get a 1099 to my LLC (taxed as C-Corp), and it did an equity investment in an LLC two years ago (before it was a CCorp), and I'm looking to make another couple purchases this year. Can you actually hold debt against a subsidiary LLC if it's a disregarded entity? Pros/Cons?