For flip, should I have an LLC or just as an individual? What about BRRR?

Question

1, I just did a flip with a partner. He has an LLC, but I am an individual. The profit will be taxed at my personal tax rate.

What's the benefit of having an LLC to do flip? What I think is that the mileage and meals would become business costs to write off tax.\

2. What about BRRR? Is there any tax advantage to hold it under an LLC?

Ashish Acharya · Answer

@Lilly Fang Flipping with an LLC vs. Individual:

Tax-wise, though, LLC won’t change your rate since the profit typically passes through to your personal taxes. If you get an S-Corp, it can save SE taxes. If you need an S-Crop depends on many factors: FICA wages/income and net profit.

LLC doesn't save any taxes in BRRRRR.

*This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Basit Siddiqi · Answer

These are questions that you should have asked before getting into business with a partner and flipping a house.Whether the partner has an LLC or not is not important to you unless you are listed as a member of his LLC.How did you both acquire the property?Was the property acquired by his LLC?Or was the property purchased as tenants in common between you and the LLC?

Evan Polaski · Answer

@Lilly Fang, to echo Gregory's answer, a sole-member LLC is a disregarded entity from tax purposes, so no tax benefits or added costs in my experience.  You can deduct all realistic business expenses, including mileage, meals, allocated cell phone use for business purposes, home office space, etc whether you own the flip in an LLC or personally.

I would also disagree with the earlier comment that is helps simplify the process of adding partners in for future projects.  Typically, you will have unique ownership for each project with partners, i.e. you and partner A are 50/50 on this deal.  Next deal, you and partner A are 30-70, but it is also likely a different LLC with a separate OA.  Third deal you may have Partner B, so would need a new LLC and OA for that one anyways.  Granted, it can become more efficient if you are using your OAs as templates for each new deal, and only changing basic business terms.

And as for BRRRs, owning in an LLC does change your financing options.  Fannie and Freddie will not originate loans into an LLC, last I checked, so you will be on the commercial side of any bank you work with.  This often means lower LTV, higher interest rate, and shorter terms.  The upside is, even with a personal guarantee, the mortgage will not show on your personal credit report.

Lastly, in both, while LLCs do offer a level of protection, which is certainly valuable, they also require more work.  Not just in the setup, initially, but separate bank accounts and properly signing all documents as a member of the LLC, even if you post on your personal social media accounts about a property owned by the LLC, if someone sues you, they will try to use all of that to get to you personally.  It is called piercing the corporate veil, and is honestly, not that hard to do by good attorneys.

Gregory Schwartz · Answer

Not a CPA, but here’s my take:

There’s no inherent tax advantage to having an LLC since it’s a pass-through entity. The main benefit is liability protection—it helps shield your personal assets in case of legal issues. You can already write off expenses like mileage and meals as a sole proprietor, which is essentially what you’re doing now.

For BRRRR, keep in mind that refinancing a property owned by an LLC can be more difficult, as many lenders prefer to deal with individuals. It might be simpler to hold off on transferring to an LLC until after the refinance.

Hopefully, a CPA can jump in and provide more in-depth advice!

Good luck!

Jackson Ebersole · Answer

Hi Lilly,

Having an LLC has some advantages compared to flipping including the ability to deduct business expenses like mileage and meals, which can lead to significant tax savings. An LLC also provides liability protection for your personal assets in case of issues during a flip. Plus, it simplifies the process of adding partners for future projects and helps keep your finances organized.

As for BRRR, you can also deduct expenses and LLC income is reported on the owner's personal tax return, avoiding double taxation that corporations face. This allows rental income to only be taxed once. Also, single-member LLC owners can often deduct mortgage interest on rental properties.

Let me know if I can help you any further. Feel free to reach out.

Best,

Jackson