hi everyone! we need your help to choose the business entity that is appropriate to our goals in REI.
my partner and i are focusing on multifamily home rentals with sec8. we are trying to build passive income and maybe do flips on the side in illinois where we reside. do you think we should incorporate our business name with LLC or S-corp?
Hi, what did you decide to move forward with?
I just read about this on one of the forums here. The general consensus seems to be you would want all your rental properties in a LLC.
Any flips you would want in a S-Corp, it seems the tax benefits for capital gains and Self employment tax are better in a S-Corp.
All the CPA's said not to have both rentals and flips in the same LLC or S-Corp. From what I was reading having both in the same entity was very problematic come tax time.
Maybe one of the many tax experts here will chime in to give a more detailed explanation. Good Luck
I prefer LLC for all activity because the LLC allows loss carry back write offs not all fix and flips are profitable :) and its nice to go backwards and get some past tax back.. you can go back 5 years. I look at it like a safety net incase one of my deals blew up on me. in these great years of late were I have paid very large amounts income tax if I had a melt down project and lost say 500 to 1 mil ( which has happened to me in 09) I could then go backwards and recapture all the tax I paid the last 5 years.
Now of course that's me were I have high exposure to risk.. if your exposure to down side is not as great then I think anything you can do to get out of AMT is good.
Although I also like the uneven distributions you can do in an LLC and the general flexibility of the instrument itself
An entity to 'run your business' and an entity to hold title/own RE are different to me. I title my 5+ unit commercial apts buildings in LLCs for anonymity and asset protection. They are seen as the best entity for passive activity in my experience. Flipping and active income can also be in an LLC, but you may want to elect to be taxed as an s-corp. @Jay Hinrichs brings up additional advantages I didn't realize, too!
I do not do multiple business purposes inside the same entity. I wouldn't flip and hold inside the same one.
I run my business (my mgt co) in an s-corp. The s-corp owns nothing but has SE tax benefits and I can establish/fund a defined benefit retirement plan with excess profits if I need to defer reportable income. Oops - I earned an extra $28k this year. Let's throw that into my retirement plan and make it disappear.
Hopefully I'm accurate. I'm not an accountant. See a good one that specialized in RE before you make your move @Michael Maicad !
You know that an LLC can elect to be taxed as a small corporation(s-corp), right? LLC can be disregarded entity, corporation or partnerships. So you get to be both - a Limited Liability Corporation, if you so choose. Complete the Form 8832 with the IRS for entity classification. You may even be able to change entity classification up to a certain point within a specific LLC of yours. You should confer with the IRS or your accountant on the specifics there. Though most people just start another LLC. My coin.
Jay, does that 5 years of recapturing losses apply to only scopr elect llc, or any llc. Thanks.
@Account Closed I believe I could take it because I was an LLC and not a corp.. that's what my accountant told me.. we were thinking of moving to a corp then he advised me that I could not get loss carry back refunds. And since I am in a high income with potential for large loss's business its kind of an insurance policy for me for lack of better words.
as it turned out with the 08 09 meltdown and selling off all the properties I foreclosed on that I took large loss's on .. I was able to go back 5 years and basically get refunds of darn near all the tax's I paid in those years.. it was that capital that let me survive while I reorganized. without it I probably would have been like many others in my line of work and had to file for reorg
I am a landlord and am signed up with a very affordable legal plan service on which I can call on a high quality attorney at any time when I run into legal issues concerning my rental properties or when trying to purchase or sale a property. These attorneys also work for a highly respected law firm for your respective state. Check out this video......http://www.hrmcplans.com/267372