Rental property tax benefits

[Metse Elliot]

If i want to build a huge investment portfolio,should i buy rentals under my name,company or trust for good tax benefits?

[David M.]

@Metse Elliot

Trusts are really for anonymity. Legal entities provide asset protection, not tax benefits especially if it’s just yourself.

Since you said rentals, I believe S Corp is probably the second worse approach since you are supposed to be paying yourself a “reasonable salary” and the rest of the funds are distributed as dividends. The former is ordinary income subject to your regular tax rate and self employment tax while the latter is is just taxed at your regular rate. This is generally ‘bad’ (unless you are doing a pretty ‘advanced’ setup) since rental income is passive. It’s generally inefficient to actually ‘force convert’ your passive income to active.

Depending on your risk tolerance and size of your portfolio, using your personal name is fine. Use insurance and umbrella liability policy to protect yourself. Plus, you get the benefits of cheaper financing by doing it under your name.

Don't forget there are additional costs and complexities to using a legal entity like a LLC as you have to maintain your corporate veil to maintain your asset protection. Otherwise, you think have the asset protection but really don't.

Good luck