Skip to main content

What is the best legal entity for a small rental investment property ? LL or LL with C or S Corp election ?

Irvine, CA |

My partner and I want to create a multi - member LL , LL / C or LL / S Corp tax election for a small single rental property . Which of these ( or normal C Corp or S Corp or Sole Proprietorship ) provides best tax benefits at the end of the day . I want to minimize taxes and the pass - through LL and LL / S seem to have SE tax in addition to personal income tax on allocated income . LL / C on the other hand has double taxation . Is there a taxable income amount threshold where the one structure is better than the other ?

+ Read More

Attorney answers 4

Posted

If the property is a small single rental property, LLC is probably your best bet on an all around basis.

This answer does not constitue legal advice, nor does it creat an attorney/client relationship. If you are seeking legal advice upon which you intend to rely, you should hire competent cousel familiar with this area of the law in your locale.

Posted

I would concur with my colleague that an LLC is probably the best way to go. You have the same liability protection of a Corp, without all of the formalities. Generally, I recommend LLCs for investment or passive income and S-Corps or C-Corps for Operations. Whatever entity you choose, it is important that you have agreements in place. For an LLC, you need an operating agreement whereas for a corporation you are looking at a shareholders agreement. You also want to have agreements in place that contemplate the four Ds (Death, Disability, Divorce and Dissolution) It is well worth your while to invest a little bit up front on getting these agreements in place then having to face a situation in the absence of one. As to you taxable income amount or threshold, consult a good CPA. Based upon a good business attorney's counsel and the input of a competent CPA, you will have approached the decision with due diligence.
Good luck with you venture!

No Attorney-Client Relationship The use of this website and/or any information contained herein shall not create any attorney-client relationship between you and Amezcua-Moll & Associates, P.C.(or any of its attorneys). Prior to acting on any material based on the information contained herein, you should seek and retain an attorney licensed to practice law in the appropriate jurisdiction.

Demosthenis Zeppos

Demosthenis Zeppos

Posted

If the entity is going to hold real estate, consider either the LLC, or if large enough and you want to avoid the gross receipts tax, an LP; but only if you expect to have revenue in excess of $1,000,000

Posted

I agree with my colleagues. An LLC is an excellent tool to own and manage real estate.

From asset protection perspective, though, note that an LLC will isolate the risk generated by the property, but it will not protect your personal assets (bank and brokerage accounts, your primary residence and other investments). A plaintiff may always try to pierce the corporate veil by holding you personally liable by theories as negligence or gross negligence.

Depending on the value of (your stake in) the rental, the revenue it generates, and your total personal net worth, you may want to consider combing the LLC with a legal tool that was specifically designed for asset protection purposes such as a Family Limited Partnership filed in a state with strong charging order rules such as AZ.

It may seem overkill but I recommend you to seek advice with an experienced CPA, an insurance broker with expertise in real estate and an estate planning/asset protection attorney.

Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4 Billion in client assets. Answers given by him in this forum do not establish an attorney-client relation. He advises to seek a specialized attorney in the area of your interest for legal representation.

Marty Burbank

Marty Burbank

Posted

Mr. Lodmell's answer is really the most compleate answer. Specifically he points out the asset protection benefits of setting up the LLC in a jurisdiction other than California. We typically recommend WY but NV, and AZ both have good statues for this purpose. Many attorney's don't understand the benefits of using a jurisdiction other than CA, you should be talking to an attorney who regular sets up LLC for asset protection and who understands the what charging order protection is and how to use it.

Posted

I would use an LLC one hundred percent.