I have one rental property with passive losses. I do not have any other real estatement investment property but do I plan to invest in REIT and tax liens in future. Does it make sense to convert my rental into LLC or only when I have more than one rental property? Are there typically any tax advantages in doing so or is it primarily for asset protection?
Not giving tax or legal advice, but here's what I learned while forming my S-Corp.
The main benefit is in shielding your personal assets against any liabilities your property may incur. Let's say someone slips on ice on the stoop and sues and is awarded $1,500,000. But your liability policy only covers $1,000,000. If you are operating as a sole proprietor, the winning party could come after your personal assets for the balance. Under a corporation your personal assets would be shielded. Your corporation may have to declare bankruptcy, but at least your personal home and other assets would not be at risk.
In Fred's reply above substitute LLC for corporation. They are different things but the principal is the same.
You are always responsible for your own actions. If you are a sole member of the LLC you are the decision maker. Both the LLC and you personally are responsible for your decisions. An LLC may not provide as much protection as you think. Despite this I still own all my properties in an LLC
To answer your question there is no tax advantage I am aware of by owning in an LLC. The advantage of an LLC is liability protection. That protection may not be a great as you would think.
Ned Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/
(the comments are incredibly helpful as well, not just the article...)
Here is what I found out. I too am not a lawyer, or CPA, but from them I found that a single member LLC has little protection, but a multi member has a lot.
Also, you should take advantage of the Resident Agent. Don't make it yourself, and never use your home address for the location of the business. Get a virtual office if you need to.
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