[Question] Investment Property + LLC + Taxes

[pixelrogue1]

Hello everyone,

I have been a landlord for a number of years and looking to shift the portfolio into a more LLC setup. I am closing on an investment property in a few months and have the opportunity to purchase in an LLC.

If the LLC is just in my name, income/expenses remain as pass-through, as I understand. My wife, however, would not be included as 'one owner' (as we are married,) rather she would be added as a 'second person' to the LLC. Once that happens, it appears tax status changes and we would then be filing separate tax forms just for the LLC? Furthermore, if there are more than one property in more than one LLC, each LLC will have its own tax forms if both me and my wife are listed in the LLC?

Anyone here w/experience of LLC + Investment Property?

Could my wife be the sole owner of one LLC, I the sole owner of a second LLC ~ and income/expenses remains as pass throughs respectively?

Thank you...

-PR

EDIT: Pennsylvania PA

 

[FlyingRon]

If you split things up into single-member LLCs, then each person gets the taxation directly as a disregarded entity (each treats it as a sole proprietorship).

You didn't indicate what sate you are in. If you are in a community property state, an LLC with just a husband and wife members can be treated as a disregarded entity on your joint return.

If you are in a qualified joint venture (both husband and wife are active participants), you can apportion this as two sole proprietorships.

Otherwise the default is to treat it as a partnership. You could optionally elect to be taxed as a corporation.

 

[LdiJ]

Hello everyone,

I have been a landlord for a number of years and looking to shift the portfolio into a more LLC setup. I am closing on an investment property in a few months and have the opportunity to purchase in an LLC.

If the LLC is just in my name, income/expenses remain as pass-through, as I understand. My wife, however, would not be included as 'one owner' (as we are married,) rather she would be added as a 'second person' to the LLC. Once that happens, it appears tax status changes and we would then be filing separate tax forms just for the LLC? Furthermore, if there are more than one property in more than one LLC, each LLC will have its own tax forms if both me and my wife are listed in the LLC?

Anyone here w/experience of LLC + Investment Property?

Could my wife be the sole owner of one LLC, I the sole owner of a second LLC ~ and income/expenses remains as pass throughs respectively?

Thank you...

-PR

A single member LLC defaults to a (in your case) Schedule E. Its not pass through, its treated as a disregarded entity for tax purposes.

A multiple member LLC defaults to a Partnership (although an S-Corp election can be made if warranted) and a partnership return must be filed. Partnership income passes through to the partners, therefore the tax would still be paid as an individual.

An LLC is not necessarily going to give you better protection than a good liability insurance policy, but it can be beneficial in other ways, when you have multiple rental properties. The real estate expert in our firm recommends having 2 or 3 properties in each LLC, rather than trying to have a separate LLC for each property. Its not cost effective.

You will want to consult a real estate attorney and a local tax professional before you go too far into things. There are costs involved in having an LLC, which vary greatly by state, and you did not mention yours.

 

[STEPHAN]

Make sure you keep the finances totally separated between the LLCs!

 

[davew9128]

What state?

 

[pixelrogue1]

If you split things up into single-member LLCs, then each person gets the taxation directly as a disregarded entity (each treats it as a sole proprietorship).

You didn't indicate what sate you are in. If you are in a community property state, an LLC with just a husband and wife members can be treated as a disregarded entity on your joint return.

If you are in a qualified joint venture (both husband and wife are active participants), you can apportion this as two sole proprietorships.

Otherwise the default is to treat it as a partnership. You could optionally elect to be taxed as a corporation.

Pennsylvania / PA

 

[pixelrogue1]

What state?

Pennsylvania / PA

 

[FlyingRon]

Then my second option (If you are in a community property state....) doesn't apply to you.

 

[pixelrogue1]

Schedule E: Correct. Wrong terminology, my apologies. Schedule E, though files under personal taxes nothing specific for the LLC.

Bank lending requirement for individual LLCs, at least for the purchases themselves.

We already have a few LLCs we can use... got two for a different plan that did not work out...they are dormant can be used.
Yes, good insurance also key...

Finances between LLC's -pretty good at keeping finances separate. That said, the plan would be to have a dedicated credit card for each LLC. As we have other rentals, we are hopeful we can use the existing bank account itself to collect the new rent and make payments. Doing so, though, would then be mixing things together? These are only expenses to the rental business, not personal. So if one were to reach and make the case that the finances were mixed and as such personal, it would still be limited to the business (albeit a broader reach into the larger business.) The thought of having a dedicated bank account just for one tenant, well, seems like a lot of repetitive work every month when one bank account would do.

 

[Taxing Matters]

Then my second option (If you are in a community property state....) doesn't apply to you.

And since the OP is looking to own the properties and conduct the rental business through a LLC the option for a qualified joint venture is off the table as well. As the IRS notes in the article I linked: "A qualified joint venture, for purposes of this provision, includes only businesses that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a limited partnership or limited liability company)."

As a result, they can either (1) just have each spouse be the sole owner of each LLC (e.g. if they have two LLCs the OP owns one, the spouse the other) or (2) if they both own the LLC, treat it as a partnership. With (1) the rental is treated as the sole proprietorship of the spouse that owns it, with separate Schedules C for each spouse. With (2) the partnership files a Form 1065 and the income from the partnership flows through to the partners. So either way, the income still ends up on their personal returns.

If they want to do multiple LLCs, one way to do this with both as co owners and keep things a bit more simple for tax purposes would be for them to jointly own one LLC, which would be treated as a partnership, and have that LLC then form the LLCs that are actually used for each rental property. The LLCs owned by the partnership would be disregarded for federal tax purposes, so all the income gets reported on just one Form 1065, with just one Schedule E on the personal return.

 

[LdiJ]

Schedule E: Correct. Wrong terminology, my apologies. Schedule E, though files under personal taxes nothing specific for the LLC.

Bank lending requirement for individual LLCs, at least for the purchases themselves.

We already have a few LLCs we can use... got two for a different plan that did not work out...they are dormant can be used.
Yes, good insurance also key...

Finances between LLC's -pretty good at keeping finances separate. That said, the plan would be to have a dedicated credit card for each LLC. As we have other rentals, we are hopeful we can use the existing bank account itself to collect the new rent and make payments. Doing so, though, would then be mixing things together? These are only expenses to the rental business, not personal. So if one were to reach and make the case that the finances were mixed and as such personal, it would still be limited to the business (albeit a broader reach into the larger business.) The thought of having a dedicated bank account just for one tenant, well, seems like a lot of repetitive work every month when one bank account would do.

You cannot mix anything at all. All bank accounts must be separate and must be in the name of the individual LLCs. All expenses must be paid for each property from the LLC that it is in. All personal expenses must be paid personally and not from any of the LLCs. If you want to get money from the LLC's you must take an official distribution. Any mixing of the LLCs monies can take away any benefits of having the LLC.

 

[pixelrogue1]

You cannot mix anything at all. All bank accounts must be separate and must be in the name of the individual LLCs. All expenses must be paid for each property from the LLC that it is in. All personal expenses must be paid personally and not from any of the LLCs. If you want to get money from the LLC's you must take an official distribution. Any mixing of the LLCs monies can take away any benefits of having the LLC.

That will be a bit of a hassle, but doable. Thank you.

 

[pixelrogue1]

Topic continues.... different forum....

https://forum.freeadvice.com/threads/question-llcs-married-couple-taxes-state-of-pa.656049/#post-3653084

 

[quincy]

Topic continues.... different forum....

https://forum.freeadvice.com/threads/question-llcs-married-couple-taxes-state-of-pa.656049/#post-3653084

Topic should continue here. The other thread has been reported.

 

[pixelrogue1]

Topic should continue here. The other thread has been reported.

Please carry the posts here then if this is where the thread belongs... it is good content on the other thread.