Getting ready to sell some land and reinvest in SFR and Duplexes. What is the simplest way to hold for liability protection and tax advantage? I will be involved in the day to day management. I was thinking each unit held in separate trust with one LLC as beneficiary. Each trust would be managed by me to keep the bookwork and banking simple. Collect the rents, pay the bills and sweep the remainder into the LLC account. Is this simple and effective? Am I missing something?
trust/llc is great. LLC alone is probably sufficient.
I would advise against “running it through” your bank account, even as manager. keep it seperate. looks too much like comingling.
have a seperate LLC to be manager if you want to keep it simple (that’s what my sister does).
So, one or two properties under each trust with LLC as benificiary. I like the idea of keeping the properties separate for liability purposes. Then another LLC to manage the properties, keep the books for each trust and move the money on to the benificiary LLC. The benificiary LLC moves the funds to me personally. Does the management LLC charge the trusts a fee? Does that same LLC have deductable assets such as a computer, a vehicle or office space? Are the funds held by the Management LLC for the trust expenses protected if someone sues one of the trust? Thanks for your replies.
It may add a little complexity to your reinvestment strategy, but consider sheltering the profit on the sale of your land with a 1031 exchange. In a 1031 exchange, the replacement property must be titled in the same way as the relinquished property.
Once you have completed the exchange, then move the replacement property into the title holding vehicles you have picked for your asset protection strategy.
Thanks Dave. That was part of the strategy. My home is on a parcel of this land and we are going to put as much as possible on the selling price of the home. That way we can use the funds from its sale how we want, tax free, without the hassle of 1031 exchange. Will do the remainder through 1031.
LLC charging fee: definitely. otherwise the LLC has no valid business purpose (profit motive)
expenses: definitely. it’s a business.
protected: nope. the trust either has cash or other assets called accounts receivable. but since the LLC is beneficiary, the trust should really have little or no need for cash.
The IRS will allow up to ten acres to be included with your primary residence when sheltering your profits with the capital gains exclusion on the sale of your primary residence. The balance of the land will be treated as an investment property and is eligible to participate in a 1031 exchange.