Separate LLC's for buy and hold and flips?

3 Replies

Some members of my REI group have separate LLC's to separate their active work in flipping and wholesaling from their passively held rentals. As a single-member LLC- does this make any difference when they are going to be "disregarded entities" anyway?

Flipping and buy and hold are taxed differently therefore you want to have them separate.

@Amanda G.

Actually, you dont have to set up a different entity for different business activity thinking each business activity are taxed differently. 

Even if you have one entity, the income from rental will still be passive and income from Flips will still be an ordinary income. And, they will be taxed differently even within the same entity.  You do not need a different entity.  

However, people get different entity for a liability protection. iI your rental activity gets sued, your flip-property might be at risk in they are under same entity. So, keeping business activity with different risk separate protect you from this kind of liability.  ( example, Nike will conduct the manufacturing of shoes under different entity and conduct the retail shops under a different entity.)

On top of that, you save on self-employment taxes if you do flips under S-corporation. That is why people have flipping activity under s-corp. 

Rental income is never taxed as self-employed income, so you can put it under LLC because Scorp is more complicated than LLC.

Hope that makes sense. 

You can have an LLC and elect to be taxed as an S-Corp for your flips.

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