Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
×
Take Your Forum Experience
to the Next Level
Create a free account and join over 3 million investors sharing
their journeys and helping each other succeed.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
Already a member?  Login here
Tax, SDIRAs & Cost Segregation
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 2 years ago on . Most recent reply presented by

User Stats

84
Posts
140
Votes
Robert Shedden
  • Rental Property Investor
  • Rockford, IL
140
Votes |
84
Posts

"Rental Property" LLC held in "Property Management" S-Corp

Robert Shedden
  • Rental Property Investor
  • Rockford, IL
Posted

I am asking the basic question of "LLC or S-Corp for Rental Property?" but with a twist....

I am working to acquire my first rental property in Rockford, IL and was planning to set up an LLC to hold the properties... A colleague of mine suggested setting up an S-Corp for a property management corporation. Then, hold multiple rental property LLCs within the S-Corp. (Please bear with me, as I'm just diving in to the legal and tax strategies related to REI...) But, I believe the plan was to have the LLCs pay the S-Corp for services. Also, all the profit from each LLC would flow to the S-Corp. Finally, I could receive shareholder distributions from the S-Corp, thus severely limiting my tax liability from the rental property income.

Is there any validity to this? Any legal implications? I know I would need to look at the tax savings versus the additional fees for multiple entities...Please post thoughts or questions for a great discussion!

-Rob Shedden

Most Popular Reply

User Stats

3,883
Posts
3,174
Votes
Ashish Acharya
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
3,174
Votes |
3,883
Posts
Ashish Acharya
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
Replied

@Robert Shedden

This does not give you are the result what you are expecting because you, like most of the people, are missing the basic concept of taxation.

 You are saying since you are taking a distribution from S-corp thus, there is no taxable income. That is a flawed understanding. Distribution and net -income are two different concepts.  You can have 100k of net rental income in the S-corp that is driven from all the LLCs rentals, and you can take out entire 100k as distribution, but you will still pay taxes on the 100k of the rental income. Taking our distribution does not shelter your taxes. When you take a distribution of the already taxed rental income, then you dont pay taxes. That is why distribution is not taxed because you already paid the taxes on the income that generated your distribution. If you had no rental income, there would be no cash for distribution. 

Since S-corp will own all the LLCs, the net rental income will be reported in the S-corp tax return. You will owe the same amount of tax in both the cases (holding Rentals in LLCs or holding those LLC in the S-corp). All the income will flow through the LLC to S-corp to you.

business profile image
Investor Friendly CPA®
5.0 stars
215 Reviews

Loading replies...