Accounting for managing LLC and property trust

2 Replies

Hi all,  Newbie here...

We have set up a single member LLC for us to act as our own property managers for a 4 plex we just purchased. The 4 plex is owned by a trust with a 2nd single member LLC as the benificiary.

I am well versed in accounting but am having difficulty determining which entity is effected by the accounting of various transactions Can you comment?

1 booking of the HUD statement transactions - should they be booked to trust?

2 down payment from me. Is this considered capital contribution or loan? To which entity?

3. Operating expenses and rent get recorded on trust books or propertymanager LLC books?

4. Does the property management LLC need to invoice the trust for a property management fee? If so can we use an average local rate?

5 which entity must pay self employment taxes ?  Any way to avoid/ minimize other than s corp?

In my mind it seems like the net effect is that the property management LLC should only have management fees revenue recorded on it - not sure if subject to self employment taxes. Allother accounting from HUD to operating expenses and revenue should be recorded to the trust, including the management fee expense.

Would love some accountant type input ( yes I know I should talk to an accountant). Thanks in advance for any assistance.  Been loving this site!!

Consult with a RE attorney and a RE CPA and hope they don't contradict one another?

Hi. Brigitte. To be honest with you, you can't get answers to these questions without an Accountant looking at your documents and books.  It looks like a complicated situation and your tax return preparation will be very expensive. 

Once you introduce a managing LLC, you will be diverting part of your rental income to self-employment income and would have to pay self-employment taxes on that.

For a small real estate operation all these legal entities are not necessary as long as you have adequate amount of liability insurance. In single member entities the vial of the entity will be pierced in court, especially if the formalities of maintaining the entity are not followed.  

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