LLC and rentals question...

[parallon]

What is the name of your state? New Mexico

Hello all. I am forming a single member LLC strictly for asset protection. I am going to transfer over rental properties, and was just wondering to what extent I need to do this? Obviously the deed needs to be transfered, but what about the mortgage, insurance, and utilities? Do all of these need to be in place to insure asset protection, or can I just pay the bills using the LLC checking acount but still leave them in my name? I hope this isn't too confusing, but I just don't want the courts to have any reason to say that I wasn't managing it properly.

Also, is there any reason to have the LLC taxed as an S Corp. since rental income is considered Passive Income? If I did go LLC-S, what, if any, issues would I have upon selling the property as far as capital gains?

Thanks in advance,

ParallonWhat is the name of your state? New MexicoWhat is the name of your state?

 

[tranquility]

While it is highly likely a single-member LLC would provide "out" protection, that result is not guaranteed by much case law as yet. Also, as with any corporation, one does not want any potential creditors to pierce the corporate veil. One way is the "alter ego" issue you run into when you run a corporation as though it was you. By not transferring insurance, mortgage and utilities over to the corporation, you run a greater risk of this happening. Also, you run a risk of fraud accusations in regards to the insurance and the mortgage. The exact legal problems are many by not having the owner of the property be the one on the mortgage and insurance.

The question regarding LLC and S-corp is a complex one which requires a lot of space to write about. Better would be to get a book from the library or bookstore regarding entity taxation and real property.

 

[parallon]

Wow, thank you so much for your quick response. I guess I will have to get with the mortgage company to take care of this and hope they don't act on the Due On Sale clause.

Thanks again,

Parallon