Quote from @David M.:
@Changseok Kim
Maybe start here about Misconceptions of LLCs: https://www.biggerpockets.com/...
If you are doing residential properties, LLC's can be not worth it. Mainly, to do it "properly" you should be using commercial financing because the LLC can't obtain conforming residential loans. Commercial financing is more expensive and people don't want to pay it since they see how much cheaper and better terms residential loans provide. Then, they do what I see as a layman as controversial to their LLC's corporate veil is purchase with their name and their own loan, then quit claim deed the property to the LLC. However, the loan is still in their own name. I've written about this before, and many times: https://www.biggerpockets.com/... There are issues to me about using the LLC as your alter-ego and also co-mingling funds since the mortgage is in your name, and not the LLC --- where do you draft the funds to pay the mortgage, and what / who is claiming the deduction (albeit, the IRS may consider the entity disregarded for tax purposes, but the corporate veil is a legal issue)?
Meanwhile, while you can always argue the case for needing the additional liability protection, you need ot make sure to operate the LLC properly to maintain the corporate veil. Many don't really seem to, or are partially doing it. Apparently, its not clear cut as to whether your veil has been pierced. What I've gathered is that it all State specific and based on facts and circumstances. In the meantime, lawsuits are usually pretty rare in the residential area, so rare we don't have people posting about it on BP. Insurance has been enough. That's the short of it.
As for your current business, there isn't enough information provided... Did you form a legal entity? By your own statement that its co-owned by the two of you, how could it be a single member LLC? What does your operating agreement say, if you have one? Or, is it effectively a partnership?
@David M.
Thank you for sharing your opinion.
I understand that it is much convenient to keep it under personal name to use the house as financial tool. However, the way I look at the corporate veil is another insurance. We purchase insurance for the worst case scenario. We hope that we do not need it but it can save us big time when it is needed. I hope to have corporate veil protection because there are situations that insurance alone may not enough, and insurance may not cover the loss. Yes, it may be rare, but it certainly exists.
Going back to my situation, my rental property is fully paid, so no mortgage payment is needed. I am currently working on operating agreement (yes, I should have done it long time ago). I just recently learn the importance of formality of corporate and of liability protection.
When LLC is owned by a spouse, tax can be filed in your personal tax filing like sole proprietorship. Also solo 401k can be created as well. So This is where my question comes from. when it comes to corporate veil, would it have a same benefit as other multi member LLC?
