Creating LLC without putting any properties in it

8 Replies

Hey guys,  I like to think I'm real creative but as always, someone has probably alraedy thought of it. I'd like to see if anyone else is doing or isn't doing what I think is a viable idea.

I have some rental properties at the moment that are all under my name. I am hesitant to put them in the LCC to keep safe from due-on-sale situations with the mortgage. I do have a property that is clear of any mortgages but I am hesitant to put that under the LLC in fear of restrictions of obtaining loans from it. With that said, I am not putting the properties under the LLC.

I do wish to create an LLC to tax deduct costs that are currently not deductable for my real estate investing venutre. Costs such as advertising, traveling to see properties (and end up not buying), traveling to meet mentors, and education.

Is this something that is reasonable?

I'd like to hear some input on people who have tried this (whether success or failure).

I'm not sure an LLC would affect your tax situation. Single member LLCs are disregarded entities for tax purposes. For properties you would file a schedule E and for business income you would file a schedule C.

Why do you think your expenses aren't deductible now?

@Matt Y 

Thanks for the response.   I do not believe the things I mentioned in the original post are delectable because they are not operating costs to my existing properties.  The intent is to purchase new properties, however if no deal is made, there is no property to put those costs to. Does that make sense or am I off?

I believe you could still write it all off but you'd want to see what your tax professional says.

If not, you could create a management company of sorts.  You could easily file expenses against a schedule C return but after a few years of posting a loss that "business" would be considered a hobby and you no longer can deduct the losses.  So you'd have to divert some of your rental income to the management least enough to cover the expenses.  Who does the property management now for your rentals?

I don't think you'd have to go through all this.  I think your accountant can figure out a way to deduct the expenses now.

I see what you're saying.  LLCs are great mediums for holding title to commercial property, but you may be better off forming a management company via an s-corp. Just for properties you have a vested interest in, so no licensing requirements. 

I set mine up over 11 years ago and like it a lot.  All rents come in through that, (payable to the mgt co) and all property trips and a lot of the expenses you mention can go through it as well.  Tenants see me as an employee of the mgt co so I tend to get less grief, too.  I would talk to a tax professional and a business structure attorney about it for more info. See if it's right for you!  Let us know what you find out @John Ma

I agree that the management company should be taxed as an s-corp IF it generates significant income.  If the purpose of it is to have it generate just enough income for it to pay for expenses, I highly recommend a strategy that just involves filing a schedule C for simplicity sake.  No 940's, 941's, corporate tax returns, etc.

Steve Vaughan I have setup a LLC this year to do as you describe here (I think, if I understand your post correctly). Can you share a little in how your accounting is setup to manage when the rental check comes in addressed to your s-corp, but you don't actually hold the property within your s-corp (i.e., it's in your personal name)? If this applies to your business setup... Thanks, Chris

@Steve Vaughan

Management company may or may not be in the best interest for @John Ma dependent on how many properties he has and what the extent of his real estate activities is. I like the structure though, especially when taking on private money or equity partners. 

John, the expenses you mentioned are typically deductible expenses. Forming an LLC will not aid or deter you in taking deductions for those expenses mentioned. My advice is to get with a real estate savvy CPA to get tailored advice and also a solid bookkeeping methodology to implement.

@John Ma depending on the level of activity with this entity you might consider just setting up as a Sole Proprietor and file a simple Schedule C. You may find that the cost of maintaining and setting up the LLC makes it a bad decision. The Sole Proprietorship requires much less paperwork and much less of a financial burden. All the expenses you mentioned would be deductible as a Sole Proprietor.

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