Looking for real estate attorney advice or CPA advice

[Dj J.]

I list both CPA or Attorney because I am not sure which would be a better for this subject. Frankly talking to both is probably my best option.

Asking for a friend*

Say someone is about to close on their first investment property, and it's being financed in their name. Residential property. Right around closing they create a land trust and transfers title to the land trust, while also creating a new Ohio LLC and setting the LLC as the beneficiary ( having due diligence to set the trustor as an anonymous figure) . Would this person now be good to legally operate and claim rental income as income for this LLC from property in the trust, and can they also claim all of the expenses for operating (mainly curious on repairs) as expenses the LLC can also claim ?

This property being purchased is very old (130+ years) , and its understood that this thing will need a lot of repairs in its first year of new ownership to maintin this thing..The biggest question is after setting up the above scenario with a Land trust and LLC is

A: thinking it would be more tax advantageous to claim all of these repair expenses to the LLC rather then in their own name (correct me if I'm wrong on that)

B:want to learn the ropes of owning and operating an LLC, seperating all bank accounts, for future growth of not only aquiring more rental real estate but also possibly transitioning to full time running the LLC as well as starting others (a transition away from my 9-5 as a way to have a more flexible schedule for my children and family) .

Is this a possibility or is the entire idea of operating an LLC which is create off an asset owned in and trust not possible? Once again, would be Ohio LLC- owned only by the investor and their spouse

Thanks ahead of time if anyone is able to answer this long drawn out question! Hope everyone is having a great memorial day weekend

[David M.]

@Dj J.

I don't know much to anything about how the land trust may complicate the tax situation.  I know its for anonymity and you hold the paperwork so nobody knows anything about it...  That being the case...

A -- it really shouldn't matter "where" you claim the taxes. Well, it technically/legally matters in terms of filing your return correctly. Numbers-wise, it should be the same thing. Either way, the income and expenses for a rental are added / subtracted the same regardless of your personal return or a LLC. You'll wind up with the same passive income / loss. If you have a single member LLC, the Federal IRS treats it as a "disregarded entity" --- basically, it doesn't see the LLC as another legal entity so the LLC's filing is with your own personal return. So, you file a SchC for any active type income /expsense and you file a SchE for the passive (i.e. your rental). So, either way, it ends up on your 1040. If you have more than one person owning hte LLC, then its automatically a partnership and each person gets a K-1 which shows the amount to report --- in the same way. So, the same number (and income type) still shows up on your 1040...

If you want to make it really complicated, your multi-member LLC, assuming you have a mult-member LLC, can elect to be taxed as a S Corp or C Corp. But, doing this is somewhere between more advanced tax planning or kinda silly (especially the C Corp).

B -- so whats the question? If there is a single guide or book on how to protect the corporate veil that would be great. Mainly, its all about not co-mingling funds / expenses is what I have found. As its been discussed many times in BP forums, LLC's really aren't necessary (and there are those who have an opposite viewpoint) for smaller operations due to the costs, overhead (you already know about the bank accounts), more expensive financing, etc...

One thing to add as I'm looking over your post again, I have no idea how financing a property in your personal name yet purchasing it in the name of a LLC will fly in terms of piercing the corporate veil. I'm more used to hearing of the LLC being the purchaser and mortgagor while the LLC member personally gurantees the loans. Having split ownerships like this is perplexing to me. Who makes the mortgage payments? The money should come out of your personal bank account. Well, where does that money come from? Are you saying you will transfer funds from the LLC bank account each month (or you need to make the appropriate journal entries) to cover the payments? As a partnership, I don't know if you can technically deduct the interest payments because you, personally paid it. If the LLC is to count it as an expense, how is it doing legally? Are you going to create some sort of contract between your LLC (which is a partnership since its two of you) and yourself? Remember, you need to operate the LLC as a standalone business. Would any other reasonably business owner be making payments on a mortgage that wasn't theirs without some sort of contract? Yup, makes your head spin, huh. Honestly, I sort of stay away from these complications.

As always, you should seek guidance and counsel from a qualified professional, or two.  Good luck.