LLC formation and growth while protecting personal assets

[Jeffrey Vanicky]

Unfortunately I have no experience and limited knowledge in this field so if you looking for me to explain I am sorry. While listening to the bigger pockets podcast on my drives to and from work, I realized I jumped into real estate investing with not only zero experience but zero personal asset protection. Believing that sometimes the best way to learn is to jump right in, I was not that worried about learning on the go. It has now been a few months since I have bought my first fix and flip. As the time goes on and I consume more and more BP podcasts I realized I should have taken the time to do some due diligence to protect myself. I understood the numbers and the costs and thought that would be pretty much all I needed, I was wrong. Some of the due diligence that should have been done is how to protect my money and profits from lawsuits and taxes. Now I know that I should be speaking with a real estate lawyer, accountant, and financial planner, I just wanted to try to get some feed back and some questions that I should be asking. I have my primary residence that my family lives in with substantial equity along with the fix and flip house that we own outright, however the houses are not in an LLC. My wife and I were thinking that moving forward we would like to have more anonymity and personal protection. So QUESTION #1 We wondered if it was possible to wholesale our fix and flip to our own LLC and keep the profits in our LLC. QUESTION #2 We wanted to take the profits from the fix and flip sale and purchase our current house in the name of the LLC. We would sell the house, rent from our own LLC, and pocket some cash in our personal name. While the LLC would have instant equity with the purchase of the house at a cheap price. QUESTION #3 Since the LLC has profits from the personal wholesale would we be able to pay less taxes by investing in the house we bought from ourselves to renovate. QUESTION #4 Would it be a smart decision for the tax purposes of losing our personal home deductions in our taxes compared to the benefit of depreciation and others tax benefits with the LLC. I would love to have some feed back if any of this is legal and a smart decision being that we are looking to purchase buy and holds, multi families, and fix and flips in the future. Also I heard about the possibility of opening a series LLC to help.

[Ned Carey]

@Jeffrey Vanicky first to you and others please break up long posts. It is difficult to read a page full of text without a break.

1) it depends on how the LLC is taxed. It can be taxed as a pass through company which is the norm or default, or you can elect for it to be taxed as a C Corp. A C Corp is a VERY bad choice for holding real estate. - the reasons are a much longer answer.

If the LLC is a pass through company, then all the profits of the LLC get added to your personal return whether you take them out of the company or not.

If you are flipping houses as opposed to holding rentals you can save a little money on FICA tax (AKA self employment or Social security) bu setting choosing to tax your LLC as a subchapter S Corporation. Ask your accountant for details.

2) I doubt you will get any advantage to putting your personal home in an LLC. You will loose one big advantage of limiting capital gains when you sell your primary residence.

3) I don't quite understand the question but I seriously doubt it. Ultimately if you make earned income you are going to pay tax on it. Flipping homes or wholesaling are both considered earned (or ordinary) income.

4) I think you are assuming there are tax advantages to an LLC that don't exist. You don't get any more or less deductions for expenses and depreciation whether you do business as a Sole Proprietor (in your own name) or a separate entity

I am not a tax lawyer nor an accountant the above is my laypersons understanding of the law and taxes. This is not to be considered advice for your specific situation. There are a lot of complexities and you should speak with a professional.