Seeking LLC Guidance; Long Time Realtor, First Time Investor in Michigan

[Fareen E.]

Good morning! Great to be here.

Just obtained my first LTR and did a mild flip to improve some cosmetics. Before I advertise it I need to clear up some confusion so I can start on the right path. I realize the LLC is for liability protection but my goal is to retire early and I want to phase into REI being my primary source of income.

That said, do I just QCD the property over to my single-member LLC and then make owner's draws? Will that count as my personal income?

I know I will have to report the LLC's profits but I'm confused as to how to handle the draws with respect to the IRS. How does a trust fit into all of this (if I wanted to get things into a trust for my children)?

Thank you for any insight you’re willing to share!

Fareen

[James Mc Ree]

Here's another perspective: Insurance is for liability protection. Use your rental's homeowner's insurance plus a liability policy to get $1M in protection. That should cover you for liability unless you plan to manage the property very poorly.

A trust owning an LLC seems to be overkill for a single rental. It could be great planning if you intend to add more properties. Alternatively, you can own the rental directly, take the income directly and simplify your life, taxes and everything. Your children can inherit the property as well.

I think you will owe transfer tax on your QCD and fees for the trust and LLC as expenses to keep in mind. I would change the above language about doing your best to keep personal and LLC transactions separate to ABSOLUTELY do that with no exceptions or your LLC is a waste.