My business partner and I started investing this year. We currently have three properties with eight total units. We hold the title to each property jointly, but we do not have any legal entities.
What is the best way for us to go about filing taxes at year end? Should we create an LLC or LLP now? Can we show all of our income and expenses related to our properties in a legal entity even if that legal entity doesn't hold our properties?
I have kept clean records on everything separately for each property, as well as a running expense tracker of expenses that don't pertain specifically to a property that we own (i.e. inspection cost for a property we didn't end up buying, cost of real estate books purchased, etc.).
How should we tackle this situation? Thanks!
LLCs are great from liability stand point. With multiple properties in your bucket, you should consider to keep these properties in LLC. You can transfer deed's on LLC's name and show property income and expense under LLC. IRS can raise a question on property not being under LLC's name for which income and expenses are being shown. Yes you can deduct necessary and ordinary expenses (inspection for other properties) under LLC.
Creating LLC and and transferring deeds won't take that long but please check with your title company for deed transfer period.
Thanks, Jay. Our only concern with transferring deeds into the LLC was that the bank could potentially call the loans. Is this a legitimate concern?
It’s unlikely to get called but technically it can happen and depending on your loan you may be required to come up with the balance
It's always a possibility that they could but most in practice won't. Unfortunately it really depends on the bank.
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