should properties be put in my name or LLC from Tax perspective?

Question

Hi, I am looking to purchase more property (currently have 3 units), but I am at a point where I need to decide whether to put the properties in my own name or my LLC for tax benefits / perspective.

Here is my current situation.

I work full time 40hr/week w-2, and make about 100k.

I have an LLC (wrapped in an S corp) in which I own 1 condo, worth 60k, with $860/m rent.

7/1/2016  purchased a duplex in my own name, worth about 130k, with 1560/m rents.

I like the supposed protection of an LLC (although it might not actually protect you, different discussion), but I have experienced problems with banks getting financing for properties in LLC's.

Owning property in my personal name allows for easier financing, but more risk, requiring the future need for a personal umbrella policy.

From a tax perspective my thoughts are.... it is wise to put the future properties in my own name because I will be able to use the building depreciation against my personal income. thus paying less taxes at the end of the year.

If I were to put the properties in my LLC would I be able  benefit from the depreciation?

Any thoughts?

Bob Malecki · Answer

Sure, the LLC is a pass-through entity, so your profits/losses and other tax benefits would pass through to your personal tax filings. As far as getting financing, you could title the property in your name then quitclaim to the LLC for asset protection. I would not own any investment property in my own name. Period. To further, you may want to have your LLC be the Beneficiary of a Land Trust which holds the property. Search for Bill Bronchick Land Trust to see his take on this.

Account Closed · Answer

I have read many similar forums over the past few weeks and found that while people debate the pros and cons of an LLC frequently there seems to be no discussion around the limitations of using personal umbrella and liability insurance to protect your rental properties. In this blog post I summarize some of the very significant gaps in coverage from a personal umbrella. I also point out that you can purchase a commercial policy while keeping properties in your name by starting a sole proprietorship (which is basically making up a name).

@William Howley to get to your question, yes there can be significant tax benefits to an LLC (particularly for rich people).   For example you can contribute more money tax free to an IRA or a life insurance policy in an LLC than as an individual or sole proprietor. You can also choose to be taxed as an s corp while still an LLC which allows you to limit the amount of payroll taxes you pay. You can also rent and lease personal assets to the LLC which allows you to take depreciation, repairs and maintenance etc.Leasing also lowers payroll taxes. LLCs can in intertwined with all sorts of others entities that allow people to manage tax liability and decrease risk. That being said people like you and me who have a few properties will likely not benefit from these types of arrangements.

Daniel H. · Answer

For those with umbrella policies, what insurers do you recommend?

Bernard Braithwaite · Answer

Good info...i dont think this is the thread for fishing for leads lol? ...i respect your hustle tho ;)

Bernard Braithwaite · Answer

Great Thread!!!

Jake Hottenrott · Answer

You can depreciate the properties whether they are in an LLC or owned in your personal name and get that benefit.  LLC's are used more for asset protection than any additional tax benefits, especially when first starting out.

When I first started out, I wish I had bought the initial properties in my name so I could have benefited from better financing.  I also would have purchased a larger umbrella policy ($2M-$5M) as my de facto asset protection.  EVERYONE should have a $1M umbrella whether they own properties or not.  Then as I outgrew any benefit of financing properties in my personal name, I would have moved to the LLC protections.

Areas for you to look into (or have a real estate attorney look into) that aren't my areas of expertise but I'd like to share (I'll try to find the post I read with this information -

Some have mentioned that a quit claim deed can potentially set off the due on sale clause of a mortgage.

Also, a quit claim can make it harder to get a clear title in the future.

Best of luck!

William Howley · Answer

Thanks @ramzi , yeah I don't have much of an option but to put them in my name and get some umbrella like you did. I think that's what alot of people do until they are bigger than 15 units or so.

Ramzi Nuseibeh · Answer

I have two properties, a triplex and a duplex, both in my name.  Each has 1 million liability and then I have an umbrella with an additional 1 million.  I THINK that's enough, but I'm also tempted to quit claim them into an LLC and separate from my personal residence, just in case.  However, that means more expensive insurance, a separate bank account for the LLC, more work on taxes, etc.  Worth it?  I guess there's some risk that somehow a judge could find that a tenant who got drunk and fell out a window would put the blame on me, but would that go over 2 million?  You take a liability risk every time you drive you car, too...I don't know, I'm torn here.

should properties be put in my name or LLC from Tax perspective?

Most Popular Reply