should I use a LLC or a C corp to flip properties

Question

In the past I have bough  close to 20 houses  in ms where I then resold most of them with a lease option ageement. I now live in texas where lease options are not supose to be used under most cases. If a buy and then resale a few weeks or month later  with a wrap.should I use a C corp instead  an LLC ? In Ms I had a LLC, but the tenant buyers never cash me out sooner than a year.

Account Closed · Answer

I was told sometime back that with a pass through enity that I could get taged as a dealer if I sold to many houses in less than a year. That a C corp was not a pass though and therefore was the one to use for flipps. Even if the C cop was taged as a dealer it would not pass through to me personally. At less that is what I was told. In Texas I can't sell on a lease option, Which means I would need to sell on a wraparound which would transfer title. Therefore I would be flipping properties with terms, but it's still flipping none the less. I do not want to do pure rentals,  so this is my perfered method to go farward with investing at this time. Just confused as to the righ way to set up my investing enity. It was my understanding that a S-Corp was a pass through enity and if the S-Corp was ever taged as a dealer it would pass through to me as well.

Account Closed · Answer

Steve,
 If this was your goal how would you go about it?

1. Take over properties sub2 or with owner carry.

2.Resell with owner carry in a few weeks later.

3. Recieve the spread on the wrap to my seller.

4. Do it again, .

If this was you investing method of choice how would you set up yor enity?

Account Closed · Answer

IT was my understanding that an LLC was a pass through enity and if you sold a house in less than a year that you had to pay more taxes. Also if a LLC is a pass through  enity could I be taged as a dealer using a LLC instead of a C corp?

Steven Hamilton II · Answer

Joe Jones,

Without knowing your tax bracket or anything I would recommend going with an S-corp or LLC that files as an S-corp.

-Steven the Tax Guy

Steven Hamilton II · Answer

Joe Jones,

An LLC is a disregarded entity (Passthrough) unless you make an election to have it taxed otherwise. It can be taxed as partnership, an S-corporation, single members as sole proprietors or a C-corporation.

Either way your situation as a dealer depends upon if you are intending to keep the houses as rentals or to flip them.  Anything you are flipping is obviously acting as a dealer.

You have to be very specific with what you are doing and through what entity. Any property that you are trying to flip that you end up renting out, you cannot take depreciation on and you must pay Self Employment Tax on the earnings.

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.

Steven Hamilton II · Answer

Joe Jones,

That would depend upon what you objective is and your tax bracket, etc.  What are your goals?  An LLC is a disregarded entity until you elect for it to be taxed otherwise.  So your LLC can file as a C-corp.

You should do some research into TX law to figure out what is legal and what is not.

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.