Hi Everyone! Hopefully there is a CPA among you for this question.
I put my first offer in on a property that I intend to flip. I've read in these forums that it makes the most sense to set up an S-Corp for the purpose of flipping homes. I intend this property to be the first of several flips to be done in the future. My question for you all, is, if I get this property under contract and close under my name, can I quit-claim it to an S-Corp and get all the same tax benefits and asset protection as I would if I had purchased it in the S-Corp's name to begin with? Also, does it make sense to have a separate LLC for each property I flip or does it make more sense to just buy properties under the S-Corp and leave it in the S-Corp's name?
Thanks for any help you can provide!
@Kyle Steiner No, you cannot. The deal is done at this point.
I'm not an attorney so cannot speak to whether it would be advisable for you to set up an entity for each property you flip, but from a tax perspective, generally, one should not do this.
Would you suggest initially buying the property under the S-Corp?
Not an attorney, but here my 2¢:
1. Never Put Real Estate in an S Corporation Without first talking to a Tax Attorney or Tax Accountant, especially if you have partners. http://walkerlawpc.net/never-put-real-estate-s-corporation/
2. What happens if you decide to keep the house, for one reason or another? S-corp might not be the best.
3. If you quit-claim, you might loose the title insurance protection.
4. From asset protection perspective, if you (your S-corp or LLC) flip a house and later get sued, and it can be for a variety of reasons, any other flips/properties you might have under your corp will be under attack. From that POV, is better to use one LLC per property and leave it dormant (although for CA that might be a very expensive option) after the sell (so if it gets sued, there is nothing to collect on). Suggestion: look into Series-LLC, if recongnized in your state.
I would talk to an attorney and CPA in your city but my CPA suggested I open an S-Corp for my flips(and also setting up a contracting business) to help minimize self-employment tax but I also have an LLC opened for properties I plan to hold, I'm sure people will argue against that, and one reason is if you plan to have multiple exits(you can't sell the property and hold onto it) doing so under an S-corp can be a problem in the future. @Amanda Han may be able to help with this.
Also suggested is that once a flip is complete to close out the S-corp and open a new one for the next flip for reason #4 that @Costin I. wrote. The same with an LLC if you're holding a property, some will suggest you open a separate LLC for each property will others prefer to have them held under one LLC and just take out extra insurance protection on that LLC.
I do not have a definite answer and I would absolutely talk to an attorney or CPA in your area but I hope this helps!
@Logan Allec when you say "you cannot" what are you meaning? Of course title could pass, but are you suggesting that if closed on in his personal name that he cannot then transfer to an S-Corp for that type of tax treatment from income from the property?
@Kyle Steiner You will still have to pay $800 for each series if you go the series LLC route. I typically don't advise my CA clients to do this for flips just due to the administrative costs that would be involved.
@Scott Smith , "Are you suggesting that if closed on in his personal name that he cannot then transfer to an S-Corp for that type of tax treatment from income from the property?" Yes, this is what I am suggesting. From his question it sounds as though whatever entity he intends to create and make the S election for did not even exist at the sale date. There is no way that transaction could be reported on his S corp's return.
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