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Using two companies to save on taxes in Real Estate?

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Auream

Junior Member
My State: New York

Hi, I recently set up an LLC for use in real estate investment (residential rental properties for the time being). I live in an area where housing prices are very low and I can therefore have a large positive cashflow each month. Even accounting for depreciation on my properties, I am making taxable earnings each year. I was thinking about a possible way of minimizing my taxable income from these properties. I'm sure I must have missed something though, so go ahead and poke holes in the plan.

Set up a C-Corp as a management company. That corporation would take care of the actual management of the properties, including finding tenants, evictions, repairs, etc. My existing LLC would then pay this newly created C-Corp for management, intentionally keeping the total income earned by the C-Corp under the $50K 15% tax bracket. However, that entire amount paid to the C-Corp would be deductible from the income of my LLC at my marginal tax bracket (28%).

Now with only a couple units like I have now it probably isn't worth the hassle for the small tax savings, but if I expand as I plan to, does this actually make sense? Is there some way that the IRS would disqualify this since both the LLC and C-Corp would be wholly owned by myself?

Thanks a lot!
 


tranquility

Senior Member
How is this saving money?

Are you doing the work? If so, you will get a W-2 from the C-corp--taxed at your marginal rate. If not, you could deduct the employee play and other costs from your LLC. Any money the C-corp "makes" will be taxed at the corporate rates and then, when distributed, will be taxed at your rates. In other words, if the corporation makes any money it will be taxed twice.

That is not to say there couldn't be reasons to do as you propose, I just don't see it from what you've wrote.
 

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