Type of LLC

[Bart Lucas]

I currently own two SFR as long term rentals that were bought under mine and my wife's names. I am looking at starting a LLC both am confused with a member managed or a manager managed. My CPA says a single member LLC with my wife as a manager. This will keep my taxes on my personal tax return, which I think is the way I want to do it. My lawyer friend (not real estate law) says it should be a manager managed but I don't know if he is looking at the tax structure. What type should I be looking at?

[Michael Plaks]

@Bart Lucas

These are three separate issues.

1. Single-member v husband-wife LLC for tax purposes. In Florida, if your property is owned by a husband-wife LLC, it will be treated as a partnership and require filing a partnership tax return. It is much more complicated and expensive to prepare than keeping it on your personal tax return, although the tax liability for the year stays the same. If only one of you owns the LLC, such an LLC can be "disregarded" (ignored) for tax purposes, without complicating your taxes.

2. Single-member v husband-wife LLC for legal and tax planning purposes. If you now own the property jointly, transferring it to a one-person LLC changes the ownership from two people to one. This creates a number of legal and financial planning considerations, to be addressed with a local attorney.

3. Member-managed v. manager-managed is a legal and operational issue, also to be addressed with a local attorney. It affects your operating procedures, legal protection and anonymity.

Make sure that you actually have valid reasons to create an LLC and to transfer property into it before jumping in. Tax-wise, there're no reasons to do it. Must have good legal reasons.