Should I move all properties to an S corp

Question

I have 5 properties title to my personal name and 1 title to my real estate company which is an S corp. My CPA says to keep it as is, but didnt really give me a reason why. My goal is to push all the income to the corporation so that I will be able to qualify for more loans and to get that added liability protection. I really dont know what to do and need some advice. I want to expand my portfolio by adding at least 1 property per year until I get 10 or more. Thanks

Michael Quarles · Answer

I've always heard S Corp for flipping LLC for holding. Trusts for hiding.

Steven Hamilton II · Answer

Mic,

There really is no reason for shifting them to an S-corporation other than giving yourself more of a headache.

Consider an LLC and put that properties there. It will require no extra filing other than an annual report.

The problem comes pulling properties out of the S corp can create tax situations most accountants would prefer not to get you involved in.  Pulling the property out and distributing it to yourself it will be considered income to you.

If you are to buy and hold properties in anything other than personal or an LLC; you would want to use a C Corp. As it will help you to obtain financing based upon corporation assets and income.

Now, you are going to want to put them into and LLC and hold them that way unless you for some reason are trying to keep them off of your tax return. The only problem is you may be creating a bigger headache for yourself in the end by trying to move them around in corporations, which will create a bigger burden and more taxes for yourself.

That corporation must have a substantial income and substantial assets to qualify for loans by itself. Any bank will want a personal guarantee. Which will have to come from YOU. This is why you are better off holding them in an LLC and including them on your 1040.

If you need me to expand I'll be happy to. Sorry if this sounds kind of rushed I'm about to walk out the door and this caught my eye.

Kent R. · Answer

Steven, this morning I actually wrote my post prior to seeing yours (I wouldn't have even posted if I had seen yours first because I've seen your other posts that have been spot on.)

What did I state in my post that caused you to caution me to be wary of my CPA's credentials?  I thought we stated the same thing and were in agreement on which entity to use for short-term and long-term holds.

Michael Quarles · Answer

Steven.  Since you have taken the Stand as an expert.  And absolutely zero disrespect intended.  What would your short list of "the 10 most important questions to ask" be?

Steven Hamilton II · Answer

It creates more paperwork for yourself, extra accounting which mean extra cost as well as the possibility of more tax. You could recognize additional gain if you transfer the property to or from your LLC. If you rent to a family member you could cause problems.

-Steven the Tax Guy

Mic Nguyen · Answer

Steve, I know your suggestion is to create an LLC. I just wanted to move them to my real estate company so that the corp. would be the owner and build its assets. If I ever decide to sell one wouldnt it just be passed as income from my S corp? Then I file my 1120 onto my 1040? Or is it way more complicated than that. My CPA says an umbrella policy would suffice and to keep the properties as is. Sorry for all the questions

Steven Hamilton II · Answer

We are in agreement. Well honestly, I give this warning to ask credentials to everyone I speak about taxes with. I provide references regularly for clients doing their due diligence.

Steven Hamilton II · Answer

Michael,

Ask them when the last time they took a course in tax theory was. A CPA is not required to take any CE in taxation after they have their license... So please do your due diligence as well. I know some very good CPA who know tax very well. I also have quite a few clients who are CPAs and do not like to touch the topic. I just want to clarify I am not bashing any CPA, I am simply asking everyone to make sure they protect themselves by using someone who is truly knowledgeable in tax.

I am a tax accountant and Enrolled Agent. An EA is someone who is licenses by the Department of Treasury in Taxation who has passed some some very difficult tax exams and has to regularly do continuing education in tax specifically. I am happy to answer anyone's questions and I am more than happy to relay experiences I have had before the IRS in regards to RE activities.
What was the most recent CE course you took and when?
What subject is/are your academic degree(s) in?
What is your specialty (tax accounting, tax representation, etc.)
How long have you been practicing?
How many clients do you have?
What percentage of your practice today is in real estate?
Have you represented clients in front of the IRS, and how many per year do you represent?
Will you share a reference(s) (or ask them to contact me) from your current client who runs a business similar to mine?
Will you share a reference who can speak to your representation before the IRA?
How can you or your professional network help me with entity structuring, retirement/estate planning, business analysis, etc.?

Steven's point is that CPA's may or may not be your best choice for tax preparation. I would have to agree with this. Enrolled Agents must pass a comprehensive federal income tax exam and take continuing education courses in tax related areas.

CPAs have a broader education and experience requirement. CPAs also have to take continuing education, but it is not necessary that it be in tax.

Bottom line is that any tax professional you choose should have the necessary background, experience and taking continuing education courses related to tax issues. As real estate investors, it is important that much of a tax professionals experience be in real estate tax issues.

Actually I'm referencing several posts and posters from this thread. http://www.biggerpockets.com/forums/51/topics/63679-ask-your-cpa-

Steven Hamilton II · Answer

Steve Babiak,

You can flip properties in your own name. You will just have to file a Schedule C to report the gains as income there subject to Social Security and Medicare.

And as far as being considered a "dealer"; You will be considered a real estate dealer if you intention is to flip the properties. If you are simple purchasing one and flipping it on occasion you are not a dealer; however, if you are flipping more than one with the intention of regularly flipping properties you will be a dealer.

Should I move all properties to an S corp

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