Tax/Structure Questions on LLC Holding : Property LLC Structure

[Richard Olshove]

Hello BP I had a couple of questions for you about the attached RE ownership structure.   Specifically:

1. For the WY LLC that has a S Corp taxation election does it operating only as a holding company for the other LLCs that own the property with the rent money collected by the holding LLCs that pass the funds to the WY LLC?

2. How do the nested LLCs work from a tax perspective? IE given that Texas is the only community property state I understand I would have to file a 1065 for each of OH and MO, but since the real managing manager is the WY LLC wouldn't I need to file 1065 for each property LLC? And all expenses/profits would pass thru to the WY LLC.

3. For the holding WY LLC what tax return would I file for this one?

4. I am confused as to the value of having a separate LLC (an operating LLC) besides the LLCs holding the properties collect the rent and operate the properties? This doesn't really seem to change the picture much besides adding more complexity without very clear benefit?

Thanks

Richard

[Paul Allen]

1. S-Corp election for the Wyoming holding company could have negative tax consequences. At best it was unnecessary.

2. Any (operating) LLC that has more than one member is treated as a partnership requiring a 1065 be filed UNLESS you elect (by filing form 8832) to be taxed as a corporation (S-Corp or C-Corp)

3. S-Corps file form 1120S

4. There is no tax benefit to your structure. There may be a legal benefit in terms of liability coverage, but I suspect a decent insurance policy would cost you less than the cost of preparing three 1065s and an 1120S every year. [Insert standard "that's not legal or insurance advice" disclaimer here]

Best of Luck with Your Real Estate Investing!