I live in San Antonio, TX and just recently formed an LLC and have been reading a ton of different things about creating different LLC’s for each property which is fine, but would all these sub LLC’s be underneath your original business name LLC?
Let me see if I have this straight - I’ve created an LLC which I “Planed” to place all my properties “subject to” in it but then read that placing them in a land trust “subject to” will protect you against the Due On Sale clause. So can the land trust be placed underneath your original LLC along with your sub LLC’s?
I also read that its best to only keep a couple of properties in a Land Trust as well. This can get pretty expensive, but being protected is well worth it I know.
place a property into a trust with LLC as beneficiary. This makes the LLC beneficial owner and it assumes all the rights and responsibilities of owner, including making payments, depreciation deductions, etc.
I think you can put up to three in any single trust. Wiz?
You could have a single LLC be bene for multiple trusts, and therefore be beneficial “owner” for as many as you desire, but this is probably unwise.
You could also have a separate company acting as “manager” for the beneficiary LLCs. The LLC’s aren’t “under” it, it acts as manager.
Are there any tax advantages to having LLCs as the beneficiary of a living trust, or any other derivative of the afore mentioned, or is it solely for asset protection?
Of the many areas of REI, I have the most to learn about taxes/deductions and to some extent asset protection. I have four companies that I use to purchase and hold properties, all LLCs. One of the LLCs is used solely for “flipping” and “rehab-and-sell” properties as to gain the best possible taxation and so I have some recourse if the IRS were to ever deem me a Real Estate Dealer or Developer on all of my properties as a whole.
The investor I used to subcontract from full-time started a new LLC whenever the equity in the properties held by that LLC exceeded $200,000, as to basically prevent putting all his eggs in one basket. There were many other things he did to gain both favorable taxation and asset protection… but he was very tight-lipped about this, as he didn’t want me to learn ALL the ins and outs of REI else I’d go off on my own and no longer have to jump through his hoops. Is this logic of his common? To create a new entity once the assets within said entity exceed a certain amount?
I currently rehab-and-hold however many properties it takes a year I can and still fall beneath the $105,000 limit allowed by the IRS to be Section 179’d. The thought of sticking all this money into properties and not being able to immediately expense it is frightening. Is this way of getting around capital expenditures legal? I hope it is, else the basis on all my properties is wrong. Is there a better way?
By the way, this forum is where all the “newbie” investors should really be starting out in, albeit probably the least interesting to them. The information here supercedes all the rest, in my opinion, as if you do not have basic knowledge of REI tax law you cannot make informed, quality decisions about how and what to invest in in the first place. I am not sure how many of you regular posters in this forum look over the others, but it’s frightening how many people there are jumping right into real estate without even knowing what capital gains are.
Thanks for all of the work you guys do and the INCREDIBLE knowledge you share on a daily basis.
Hello all. This is my first post and am new to the short sale and wholesaling investment arena. What would be the most logical and tax saving entity (LLC or ???) that I should have? Thanks much
Yes, in my opinion, Section 179 exense is wrong for your rehab or capital improvements.
For properties you rehab to hold for rentals, your rehab cost is an ajustment to basis. You do not take a Section 179 expense for your rehab. If you make any capital purchases for your rental property after you have the property in service, you depreciate the cost of the capital item. Section 179 expense deductions are generally denied to the rental property operation.
For properties you intend to flip, your rehab cost is accrued until you sell the property. You claim all your rehab cost as part of the cost of goods sold in the year the property is sold.
As a general rule, you don’t form business entities for tax benefits or tax savings. You form a business entity for the legal protections it provides in the event you are sued.