First Rental Property - CPA made Scorp election while creating LLC

[Ashana Singhania]

Hi All,

I'm looking for help as I've been receiving really contradictory information after several CPA consultations. I'd love some advice or Real estate specialized CPA suggestions.

Context - I recently bought a property in South Carolina and its currently operational as a short term rental. I created an LLC to move the property from my individual name to the LLC for liability protection. While creating the LLC, an S Corp election was made via form 2553. Recently, I found that it could bring heavy tax implications should I move the property out of the LLC for refinancing. I haven't yet moved the property under the LLC. Before, I do, I'm looking to revoke the S-Corp election and would like the tax status to get back to a normal LLC. I really want to understand the tax implications of doing so. Also, its relatively new, so should I just dissolve the comapny and create a new LLC or there is a way to work through the existing one?

[David M.]

@Ashana Singhania

In addition to the above... I saw you mentioned: "...I move the property out of the LLC for refinancing." I'm of the camp that says you shouldn't do that. If you want the limited liability protection of the LLC, you need to have the mortgage in the LLC's name. So, you need to get commercial, i.e. non-residential, financing.

Remember, your corporate veil is a legal matter.  So, if your residential lender is advising this (which seems to happen a lot), they are neither attorneys nor have any fidicudary responsibility to you.  They are sales people after all.

You probably should get a new cpa/accountant if they didn't understand what you were doing and decided to do a S Corp for your real property.  Although, maybe it was just some confusion.  But, I keep hearing about accountants "pushing" the S corp when it doesn't seem to be warranted.  To be suspicious about it, it does give them lots more work to bill  --- i don't know.