All Forum Posts by: Nicole Chriqui

OK, but I've already purchased the properties to flip in the LLC. If I form a separate entity, how do I transfer the properties from my current LLC to the new entity? My current LLC funded the purchases, using it's money and some personal money that I loaned to the LLC.

I currently have 3 free-and-clear rental properties in a single-member OH LLC (I live in CA). Since that LLC is a disregarded entity for tax purposes, I use Sched E on my personal return to account for the OH rentals. This year I plan to buy additional houses, some of which I'll keep as long term holds, and some of which I'll fix and flip. I intend to do at least 5 flips this year and have already purchased 2 additional properties in the LLC which I plan to fix and flip. All of these transactions are cash, so there is no financing involved.

I now realize that flipping multiple properties will subject me to self-employment tax on all the profits. I am therefore considering changing the tax status of the LLC to an S-Corp, which would reduce my self-employment tax by allowing me to take some of the profits as corporate dividends. However I'm unclear how such a change will affect the rentals, especially since I have read that rentals should not be held in an S or C corp (my entity would still be an LLC, with an S-corp tax designation). Here are my questions:

1) I've had the OH LLC since 2011. Can I elect the S-Corp designation now? The form says something about explaining why you're filing it late, which I'm confused about.

2) I currently have a Fed Tax ID for the LLC. If I change to S-Corp designation, do I need a new tax ID #?

3) How are rentals/long term holds accounted for in an S-Corp?  What are the disadvantages?

4) Should I form a separate entity for the flips? If so, how would I transfer the properties from the current LLC to the new entity? Would that be a taxable event? One of the houses has already been rehabbed and is ready to go on the market -- if it were transferred, what would be the cost basis?

5) should I get out of real estate altogether?  OK, this last question is a joke :-)

Your answers (preferably from a CPA) are appreciated. Thanks.