Tax implication of having my LLC manage rental held individually

[Todd Willhoite]

I am purchasing a rental property in my own name in order to get conventional financing. I have an LLC with rental property in it. It would be easier to keep track of expenses and in renting the property to tenants to use the systems, forms, and bank accounts of the LLC. If I in my individual capacity contract with the LLC to manage my rental house, are there adverse tax consequences? (I am thinking it might turn passive income into active income, etc.)

[Cody Backus]

@Todd Willhoite, 

My response will combine the response of the other two responses you already have. As

@Steve Vaughan stated, the fees you would charge to manage your property would likely by categorized as "active" income whereas your rents collected through properties already held in the LLC would be considered "passive". Because of how these types of income are classified by the IRS, they are also taxed differently.

Typically the ideal situation for asset protection (observing corporate formalities and protecting the corporate veil) and tax advantages (using the right type of entity for the right tax advantages) is to hold rentals in the standard LLC while an S-elected LLC or S-Corp would be used to manage your properties. The standard LLC would contract with or hire the S-elected LLC or S-Corporation for management purposes. All of this is pass-through for tax purposes but it keeps the two entities doing what they should from a tax and asset protection standpoint.

Be sure to keep the income and bank accounts for each company separate as if they were two very separate and distinct companies. Don't sign lease agreements in the name of the S-elected and don't send invoices to tenants from the LLC. Operate two companies. Not as hard as it may sound.

Perhaps @Dave Holland can confirm from a tax standpoint but this is what I have seen many times from a legal standpoint. 

And, to cover my butt, make sure you chat with local legal counsel. Nothing here is meant to create an attorney-client relationship or act as legal advice for your particular situation. Just general info regarding typical structures I have seen that work well.