Using your SMLLC to be your Partner on a New LLC Entity

[Jay R.]

Hello BP! I have a SMLLC (single member LLC) that is currently setup to be Taxed as an S-Corp. I am the only Manager/Member. I wanted to form a new multi-member LLC Taxed as a Partnership. I understand it is perfectly legal for other entities to be "Partners/Members/Managers" in this new Partnership/LLC. BUT I was wondering if the IRS would allow me to use my SMLLC as my other "Partner" in this new Partnership/LLC? Technically speaking, I am the only "natural person" in both entities. Also, is there a tax benefit in structuring my entities this way? The asset protection benefit is that I can utilize Special Allocation strategies whereby, I, as a natural personal individual, would own less than 10% of this new Partnership/LLC and my SMLLC would own the remainder 90% thus the majority tax responsibility would flow through to the SMLLC.

Any thoughts from the professionals of BP is greatly appreciated!

[Janet Behm]

Jay, 

EVERY REIs circumstances are different. I am not advising you.

I suspect you did not consult with your tax pro when you set up our LLC taxed as an S-Corp.

I highly encourage you to make that contact!

If you don't have a RE knowledgeable tax pro, I do advise you to look in your locale for a Certified Tax Coach. These folks use RE as their primary vehicle for tax strategy.

[Bruce D. Kowal]

Good grief! A lot of important questions, and you are looking for tips from the internet. Here is one good tip. Until you actually file something, you are free to ignore whatever structure you set up. If you set up an S corp or LLC, you DON'T have to file a return. You can walk away and report on another entity. Observation: if you have a corp, your State of incorporation will likely charge an annual minimum fee. Even if you are inactive. New York State loves to take a bite out of you. Plus NYC.

Best advice.  Extend your tax returns for 2023 until you have decided what to do.

[Jay R.]

Quote from @Janet Behm:

Jay, 

EVERY REIs circumstances are different. I am not advising you.

I suspect you did not consult with your tax pro when you set up our LLC taxed as an S-Corp.

I highly encourage you to make that contact!

If you don't have a RE knowledgeable tax pro, I do advise you to look in your locale for a Certified Tax Coach. These folks use RE as their primary vehicle for tax strategy.

Hi @Janet Behm. Thank you for your feedback.  I didn't think it was appropriate to outline my entire circumstance in my initial question thus I tried to form my question as concisely as possible.  I operate an active real estate business under my LLC/S-corp.  This entity and tax structure allows me to reduce my SE Tax liability (as you already know).  I am beginning to invest in real estate (rental properties) and wanted to understand the benefits (or disadvantages) of holding title to a rental property under an SMLLC/Disregarded or as a LLC/Partnership.  I know there are disadvantages of holding property's title under an S-corp thus my question of whether I am allowed to have my LLC/S-corp be the other partner of the LLC/Partnership that holds title to the rental property.  Thanks again.

[David M.]

@Jay R.

There is no real difference between a the two. The main diff is that with a partnership you have another return to file, and thus more accounting costs. Keep it simple and use a single member LLC.

Also, if you pass costs/losses to the S Corp side, I could see them being "trapped" or used within the S Corp which might not be so good.