How to start an Airbnb business under C Corp as a side business

Question

Hi Community member,

I am new to this community, and would like to ask some advice regarding a plan I am thinking. Appreciate for any help. Currently I have a full time job, and I make around 200k+ a year. I am thinking about starting an Airbnb business under C Corp, and would like to ask a few newbie questions around tax.

1) Buy a few cheap properties under my name, all with mortgage (20% down payment)

2) Set up a C-corp, and move over those properties to C Corp

3) List these properties in Airbnb and income goes to C Corp

I didn't want to use LLC or S Corp since my tax rank is already very high. And using C Corp to shield airbnb income, and plus certain operation tax deduction can help me save lots of money.

Questions:

1, is this plan feasible?

2, what can I count as tax deduction in my C Corp? Like cars, gas, etc, housing maintenance, furniture?

3, can mortgage count as operating cost under C Corp?

4, is this plan better than LLC or S Corp? Since I am already paying like 40% of my income to tax. I am happy to leave all income in C Corp for re-investing purpose without taking them out.

Basit Siddiqi · Answer

@Jason Wong1. The plan sounds feasible. 2. Vehicle expenses, housing maintenance and furniture will be available to C-corps(in addition to other entity types).3. Principal payments of a mortgage are not deductible. Furthermore, payments into escrow are not deductible until they are paid out by escrow to insurance/real estate/sewer.4. This is a discussion to have with your accountant as he will know what tax rate you are in. You also have to factor in that you may have to pay an additional tax on a dividend once distributed by the C corp to you individually.

George Mevawala · Answer

@Jason Wong feel free to reach out to me! I currently operate a fleet of 20 full time AIRBNB properties and self manage them. More than happy to help give you some guidance on how to grow your STR business! Also, my podcast episoide was just released and I can send you that link as well.

Cheryl Dopp · Answer

Hi Jason, if you will be actively managing your short-term rentals, will spend more than 100 hours a year, and the average stay will be < 7 days, you can generate active losses. In your case, this can 1:1 offset your active income from your regular job. You will want to set up an LLC taxed as an S-corp (you can do an anonymous WY LLC), although some say use C-corp but no idea why really,  and another an anonymous LLC taxed as a disregarded entity. Create a lease from your S-corp to your LLC and include certain expenses like rent, utilities, repairs, etc, there are numerous ones, and you may want the mortgage also to be paid out. You need to look at the numbers. On the disregarded LLC you will have positive passive income (not subject to FICA). On the S-corp side, you will have negative ordinary income offsetting your employment income. Remember that STRs can be considered active income under a variety of circumstances, and you may actually want that active income/loss in case it produces an offset of your full-time employment income. As always, check with your CPA. Try to avoid the folks trying to sell you big packages. I hear different people saying different things about whether to do one trust per property, but common wisdom I am hearing is if you do that, you might as well make them disregarded LLCs following through to your personal taxes to keep things simple.

Grantor (land) trusts can be good, but only if you are transferring a property that has a mortgage on it and trying to make sure you don't need to worry about a "due on sale" clause. Another use of a trust is in case of a Living Trust where it can be the "Member" of your LLCs. In that case, you will also have everything flow through to you onto your tax return.

Agree with all the comments on the value of the Solo 401ks, but you can do that out of the S-corp.

I have been wading through numerous points of view on the subject and have drawn these conclusions for myself. Check with your own experts on your particular scenario.

Ken Latchers · Answer

LLC is much better. C Corp - seemed like you wanted to find the most complicated way to start something that is already complicated. From what you have posted so far, it looks like you have little idea how to do a vacation rental business. it is the opposite of simple, and there is a lot you need to learn first.

You focus on corporate structure and deductions. That is maybe 1% of what you need to worry about.

This is not like buying Facebook stock as an investment.  It is something where you don't belong until you know what you are doing.

Frankly, I would consider starting using a property manager or something like Evolve for a year or two until you studied the many aspects to this - taxes, channels, property managment, guest issues, payments, reviews, and 50 other things.

Adrian Peterson · Answer

@Jason Wong

1. Transfer your property into a land trust

2. Establish a C-Corp as a management company

3. Establish a disregarded LLC and appoint as the beneficiary of the Trust and manager of the Corp

4. Have STR funds paid directly to the Corp

Sofia Sharkey · Answer

Following thread. @Tom Sharkey ^ you would be interested in reading this.

Kerry Baird · Answer

@Anthony Johnson, I’m interested in your strategy and wonder whether your book has been published. I am looking at Florida banks for lines of credit BLOC or otherwise for my STR, held in LLC. I have another LTR in our personal names, and tenant switching over. To start, I need funds to outfit this house w furniture and fittings. Any suggestions? I bank at TD but could open a new account at WF, which you posted benefits of in other posts.

Anthony Johnson · Answer

I own two real estate companies and  two prop mgmt companies, one an LLC and one an S-corp.    I am writing a book called RevDebt that shows how to buy and hold faster and  easier than BRRR formula.   My CPA is an international success and on the board of directors for SREIA and a  seasoned investor.   I also own many many doors in my LLC hybrid.   The best way  to hold deeds  is in an LLC with holdco and opco or a multi member mm owning several sm single members llc.   I have owned in land trust and there is no value there just extra work, a lot of extra expenses and I am not  a billionaire trying to hide assets  and everything I own is on my return as I want to pay taxes so I can get credit lines.    By the time you get to 20 doors, some will be  in your personal name, and then in various LLC's.    You mm llc will be the brand and the prop mgr, banker etc.  You will need C&L liability insurance, XPL liability, an umbrella for the deeds in your personal name, 500k on your auto, and hazard ins.  on all.   My attorney told me I am more likely to lose assets from something I do in my car versus a  liability from a rental home.    Pm me as I have a seed package where I teach you everything you need to know to own and grow  a rental home company.

Jason Wong · Answer

@Ken Latchers thanks for your candid advice, truly appreciated! I think you are right that real estate investment has a very different learning experience than investing in stocks, and I totally agree that there are a abundance of knowledge that I have to learn to get this started!

Jason Wong · Answer

I chatted with a few friends who were in similar situations as me. They all suggested just going forward with LLC approach, since that way I can always deduct maximum amount from housing operations in LLC, the same as C Corp.  @Adrian Peterson @Ken Latchers @Basit Siddiqi @Nancy Bachety Say if i make $20,000 from my Airbnb, and I can pretty much deduct the full amount, things like depreciation, vehicle, maintenance, etc.

How to start an Airbnb business under C Corp as a side business

Most Popular Reply