Can you spend/earn money from an LLC ?

Question

If we have a new LLC to maintain the rental portfolio but the rental properties are still in personal names is it OK to spend money on the rental property using a business credit card and collect rent to the business account even though the LLC dont own the property but the properties are still owned on the personal name ? How do we build up the business credit for the new LLC ?

Michael Plaks · Answer

@Mahi Mir

The answer is - yes, you can.

I assume that this is a husband-wife LLC, which is normally ignored ("disregarded") for tax purposes. So basically it makes no difference whether or not you have/use your LLC - for tax purposes.

Since it accomplishes nothing tax-wise, why do you even have an LLC? Supposedly, for asset protection. And if you're after legal protection, then you need to ask an attorney, which I'm not. I suspect (but I could be wrong) that asset protection will require that you transfer the ownership to your LLC, either directly or thru a land trust.

There are disadvantages of transferring property into an LLC, so do consult with an attorney.

PS. I would be careful with taking advice from other investors. They love to post about how they do or don't do asset protection. But there's a big difference between "this is what I'm doing" and "this is what is right." Just like with dieting, relationships, investments and everything else that requires no real knowledge, only opinions. :)

Eamonn McElroy · Answer

@Mahi Mir

Who is "we" -- you and your spouse, you and a dependent, you and an arms-length party, etc?

Why aren't the properties going to be moved into the LLC?  Doesn't that defeat the primary legal purpose of an LLC: asset protection?

Maybe what you have most closely resembles a property management company in which the PM company collects rents, pays expenses on behalf of owners out of rents, and then remits net rents with a statement to owners.

I don't necessary think that's optimal as you'd have to charge a fair market PM fee and would open yourself up to SE taxes on what sounds like it would otherwise be rental real estate income.

You should talk to a CPA/EA that will sit down with you and have the deep conversation about an optimal way to structure things taking into to consideration everyone's facts, circumstances and goals.