so say we decide to go with the one LLC per property route, when we are registering the LLC, is the business address the property address?
And the agent address would be your personal address unless you are going through some 3rd party? Wouldn’t using your personal address in the agent info tie all your properties together?
business address = property address. no.
agent address = personal address. yes.
tie them together? how? so what? You, me and the bald guy could all have seperate businesses at the same address. That doesn’t mean we’re “in business together” or otherwise “tied.”
Baldguy,
I have read some interesting comments by all who have participated in this discussion. Since you live in Nevada, you should contact a CPA who knows how to operate a corporation in the state of NV.
As you know, NV is a special state when it comes to taxation. If you don’t know the laws of NV or are not familiar with NV corporate law, it is best reccommended to seek someone in Nevada.
If you seek the services of setting up an entity in NV along with tax preparation and consultation, I may be able to help. I am affilited with a business that specializes in Financial privacy / Asset protection / Tax reduction in the state of Nevada.
If you would like more information on how I may be of service to you, I may be able to get you pointed in the correct direction.
We are partnered with a Premiere CPA firm in Las Vegas that has been operating for over 30 years. many of their clients are highly regarded professionals, actors & actresses, and sports figures as well as investors. I am confident that you will be satisfied with their expertise in NEVADA!
As for Asset protection, you are in the right state. NV is the ultimate in protection, but you will not achieve the privacy required when choosing an LLC… Not to say that I would not use an LLC for what you are trying to accomplish, I absolutely would. but for privacy and asset proection, the S-corp or C-corp is am much better choice.
Steve
mark,
thanks for all the responses, it is really helpful and does open my eyes to liability and asset protection issues.
glad to help.
Mark,
I know that this earlier response to baldyguy was addressing the question of conducting all his real estate activities from within an LLC. You clearly define the shield placed around the assets owned by the LLC from lawsuits against the member.
In other posts on this board, you have also explained to us all that a lawsuit against baldyguy personally, still puts all his personal assets at risk, including his personal residence, bank accounts, stocks and bonds, and anything else he may own in his own name.
However, this auto accident makes me wonder whether the personal vehicle that baldyguy drives shouldn’t also be owned by an LLC, whose only asset is the vehicle. Now when baldyguy’s car is involved in that horrible accident, both the owner of the car and the driver of the car get sued.
Since the owner of the car is an LLC whose only asset is a wrecked car, and the driver of the vehicle is baldyguy who does not own anything (his LLCs own everything), there is almost no value to the assets that could be seized or attached to satisfy any judgement.
Does this sound like I am heading in the right direction down the asset protection path? Or, am I just taking this to an extreme?
lots of individuals own “nothing” and have all of their assets sheltered in various ways: LLC, FLP and so on. They rent their house (from a company they control) have a business (LLC) that rents equipment (owned by another LLC) etc. On paper they are “poor” since they own no assets. It also sometimes helps with transferring assets to heirs (easier to transfer a % interest in a LLC or FLP every year than going thru probate).
While in theory it makes sense, it is both costly and difficult to implement such a plan, so it’s not for the average investor.
And remember, if you use a LP, FLP or LLC to hold assets, you must have a valid business purpose for the liability protection to be enforceable. Thus a LP with a vehicle as its sole asset is not a valid business entity (will be considered an alter ego) unless you pay rent to the company.
mcwagner, sorry if my question sounds to dumb, but if your intent is to flip a property, you suggest LLC for it to avoid any liability even when you own for a little time. My question is do banks allow property to be in LLC ? Do you just have the Deed of the property in the LLC ?
“banks” don’t like it. they like knowing that they can come after someone if the mortgage isn’t paid.
but you can find lenders who are comfortable and willing to finance to an LLC. They’re usually not “banks”.
You can deed the property to the LLC. Technically it violates the DOSC, but I’ve never heard of a bank calling a performing loan for that reason.
Thanks Mark, you had also suggested the get more than 1 LLC if you are flipping more than 1 properties, so is it 1 LLC per property ? Also If I use LLC to flip properties, and use 1031 exchange what tax bracket would that fall into ? thanks for all your help.
you don’t have to limit yourself to 1 property per. I don’t recommend that (overkill). just be aware that EVERY property in an LLC is at risk to liability arising at any ONE.
1031 defers taxes until the 2nd sale. DaveT can answer that question better than I.
First a disclaimer: I’m not an attorney or an accountant. Be sure to verify anything I, or anyone else, post with reputable and practicing professionals in any respective field in which you have questions.
For what its worth, from a federal tax viewpoint (IRS), a single-member LLC or S-Corp is treated as a sole proprietorship. I think it is the same from a legal viewpoint so if you do form these entities, you might not want them to be single-member but have a partner or any lawsuits could go right through these entities and go after your personal assets if they are single-member entities. Regardless, your first and best line of defense against lawsuits should be insurance.
Don’t overthink the plumbing. First look into what you might have to protect yourself from. For example, I know of someone who purchased a $5500 asset protection kit who hasn’t done even a single deal and he lives in a state where the maximum judgment against what he fears is only about $20,000, not the millions of $ he is trying to protect himself from.
$5000 seems to be an excessive fee just to form two corporations. I’m not sure where you live but it is probably best to incorporate in the state you will do business in. The most important parts of your corporations will be the operating agreements (this is also what the attorneys will charge the most for to form your entities). Be sure that your operating agreements have the “revenge clause” to address charging orders in case someone wins a lawsuit against your corporation(s). This revenge clause acknowledges that the plaintiff is entitled to proceeds but that it is up to the discretion of the manager (you) to distribute them. This means that you don’t have to distribute any proceeds but the plaintiff still has to pay the taxes on them. I love that clause. Email me if you want a template of this clause from my operating agreement.
machismo,
Property flipping is an active income activity. The property you are flipping is merchandise (inventory) to your business – not property held for investment use. You are acting as a dealer to real estate and your flip property is not permitted to participate in a 1031 exchange.
Your flip profits are ordinary income to your business. Depending upon how you elect to have your business activity treated for tax purporses, both ordinary income taxes and self-employment income taxes could apply.
Texas (and other states I’m familiar with) allow single-member LLC’s with the same liability protection as multi-member LLC’s. It’s codified (written in to the law) and you can read it yourself. It’s pretty self-explanatory.
http://www.capitol.state.tx.us/statutes/bo.toc.htm
The LLC is taxed as a sole proprietorship by default, but you can choose to tax the LLC as a corporation or S-corporation. this makes it a full-fledged Corp or S-corp as far as the IRS is concerned.
And your first and best line of defense is to not do stupid stuff that creates or inflates risk. Fix the loose board, make sure the lock works on the gate, etc.
Thanks for the heads up, Mark. I’ll leave it to the experts like you to tell the facts. Here in South Carolina, I was informed by my attorney that the single-member LLC is pretty much worthless for asset protection. Depends where the original poster will do business and incorporate.
The only reason I said that insurance is the first and best line of defense is I cannot control what contractors, kids who wander onto my properties, or others do when I’m not present. Yes, I can prevent myself from doing stupid things but I cannot prevent others from doing so and suing me for their own foolishness and therein lie the biggest risks.
everyone all your post are very helpful, but I think I am getting more lost as what I should do, anyone know a good professional in Austin area to get help regarding this.
As dealer status seems like an area very debateable, and onus on taxpayer to prove to IRS otherwise, its best to leave it to professional. I wonder if 4-5 flips a year would get you a dealer status ?
machismo,
There is no such thing as “dealer status”. The IRS does not confer “dealer status” after you have done some magic number of flips.
Instead, the IRS looks at each transaction you complete to determine whether a dealer disposition has occurred. If so, then you have acted as a dealer to real estate for that transaction and the appropriate tax treatment will be applied.
If you are flipping property, then you are acting as a dealer to real estate, even if you do only one.
So a rehabber or flipper can never escape the “dealer status” ? how do so many flippers manage to have their profits getting washed way in huge tax cuts ?