Should I Create a Corporate for Rental Units

4 Replies

I have 2 rental units with the cash flow of 36k a year. I am thinking to add some more rental unit. My question is, should I keep it as a schedule C on my tax report or create a legel business such as Corp. or LLC ? And if I create an LLC, what is the true benefits? Additional question, Do I have to change the name on the deed of my rental units to the business name as the owner?

@Huy Le

You do not want to put your rentals in you any type of Corp ( S -corp or C-corp) for various reasons. Most important being if you ever have to take out the rentals form S- corp, there will be a taxable event. If it was under LLC, there is no taxable event. And, there is a double taxation under C-corp.

That is why most people will get LLC for Rentals.

LLC will mostly act as legal protection vehicle and there are rarely any tax benefits from LLC. To answer your question,

1) Mostly, no tax benefit

2) for Legal protection. To get the desired protection, you have to follow some rules to create a separate identity of the LLC such as maintaining it's separate book, singing all the lease in its name, and more. There are other posts related to this.

Yes, your LLC would have to own the houses. It is a fairly easy process to transfer. There might be a transfer tax when you do that but depends on every state and what type of LLC (SM LLC or MMLLC). Also, if you have a mortgage, talk to your bank before transferring.

@Huy Le Are you a US citizen, resident alien, non-resident alien?

Another question is why are you reporting rental real estate on Sch C?  There are limited situations in which RRE should be on schedule C, but generally it would be reported on Sch E.

Then as @Ashish Acharya laid out, C Corps and S Corps aren't likely to be the most favorable tax entity type.

An LLC that is disregarded (SMLLC) or taxed as a partnership (MMLLC) generally would be the most advantageous for a US citizen who intends to hold long-term rental real estate.

Best to run it by your tax adviser.