Looking for tax/legal advice on LLC for SFRs? MD & FL

5 Replies

**Looking for advice/guidance before going to my CPA/Attorney and I know that’s not you.**

I own two SFRs in my name. One is in MD and the other in FL where I'm a resident. I want to establish a LLC for asset protection and tax reasons.

The structure would be to have the LLC lease my properties from me and then sublease to tenants (to avoid due on sale clause and not pay transfer taxes). Once paid off I'll deed them over.

Can I just form the LLC in FL and run all rents, expenses, etc through it without having to register it as a foreign entity in MD or file a MD state income tax statement?

I appreciate any guidance or experience in doing this. I want to do things correctly and would prefer to legally avoid MD’s high taxes when I don’t live there. 

No real tax advantage, all expenses and income get combined on personal taxes anyway.  As for legal protection, You are still the owner so I’m seeing any real protection.....I can’t imagine a non arms length lease and even an  “indemnification” from the llc to you would ever stand up.

I don't think things work the way you imagine with the structure you describe, both in terms of asset protection, taxes, DOS and transfer taxes.

The LLC structure is unlikely to give you any tax advantage - consult with a CPA before putting something crazy in place.

For asset protection, you should have one entity (or more) just holding assets, separate from another entity doing the property management (public facing) - watch podcast 109 and talk with @Scott Smith .

Here is a diagram to help you a bit in this question:

@Jon Dorsey Glad you know I'm not your attorney, but I can certainly help with giving you some questions. The information @Costin I. provided above is accurate.

If you truly want to protect your assets and streamline your business, particularly if you have multiple properties in multiple states, ask your attorney about forming a Series LLC. You can compare and contrast the advantages of a Series LLC structure vs. multiple LLCs. I have a hunch that if the attorney is familiar with the SLLC structure, he or she will likely encourage you in that direction. There CAN be tax advantages to these structures, but they must be formed and executed correctly. For instance, no matter which route you go, you're most likely going to want a pass-through entity. Here's some information on why a pass-through entity is important for RE investors. While the pass-through entity is advantageous for letting you report the entity's profits and losses on your personal tax return (Schedule E--very simple), there are potential deductions you can take advantage of come Tax Season as well. That's something to ask your CPA about.

I hope that helps you out. Please feel free to follow up if you have any additional questions or need any clarification on what I've mentioned here. Good luck to you, and bravo for thinking ahead to protect your real estate assets! You're already ahead of the game by being proactive. Too many investors want asset protection once it's too late. You're doing it the right way, from what you're sharing here, by setting it up BEFORE you have issues. The law truly favors the proactive in this area.