Advantages Of Using An S-Corporation In Real Estate Investment
I have a dormant S-Corporation. I am in the process of buying my first rental property. Should I activate the corporation and use it for the rental property? What advantages are there in using the corporation vs renting the property in my name?
If you plan on holding properties for rental, a LLC is a better entity than a S corp. The S corp is better for buying and flipping.
[addsig]
Why is an LLC better than an S-Corp? What benefits does forming an LLC have for real estate investing? Any help is greatly appreciated as I am debating on whether to form an LLC or just get an umbrella insurance poilcy for my three properties.
JeanMarie
an llc is a "limited liability corp." and it does just that, limits your liability. with ins. you are liabile, your just have ins. coverage to cover your liability.....km
Why is an S-Corporation better for buying and flipping? This is what I'm about to venture into and I understand the benefits of an LLC but I'm not too familiar with S-Corporations. Thanks for the advice.
[ Edited by rgreene27 on Date 09/29/2004 ]
I've written an article on this topic. If you still have questions post them here or PM me.
http://comm.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=452
My best advice is for you to read "Real Estate Loopholes" by Diane Kennedy, CPA, and Garrett Sutton, Esq. (part of the Rich Dad's Advisors series of books). Chapter 21 deals with "Structures for Your Real Estate Tax Considerations" and breaks down what business structures are best for different real estate activities. It is in agreement with the previous post that an S-Corp is usually the best entity for flipping. However, for holding properties as rentals, LLCs are usually best. Even better is putting each property into its own Land Trust (i.e. 123 Maple Land Trust), with the beneficial interest owned by your LLC. NEVER, NEVER, and I repeat, NEVER put properties in your own name. For info on the consequences of doing so, read Chuck Smith's "From Cop to CEO" life story.
Other informative reads are Diane Kennedy's "Loopholes of the Rich" and Garrett Sutton's "Own Your Own Corporation."
Hope this helps you.
If you are going to rent out your property and the rent is the main source of income for the S Corp, you will have a problem.
I found some basic information at:
http://www.mycorporation.com/s-corporation/index.htm
"No more than 25% of the corporation's gross income can be derived from passive investment activities."
So if you are renting, you will want an LLC. If you are buying and selling, you can use your S Corp. That's very over-generalized. You should talk to an attorney and maybe even a rei-savvy CPA about your situation.
Quote:
"No more than 25% of the corporation's gross income can be derived from passive investment activities."
I think the web site takes this info out of context. I believe the 25% rule only applies to S corps that were converted from a C corp, which most people do not have. If anyone knows anything different please let us know!
All S-Corps are converted from C-Corps. You have 90 days to file with the state after filing your corporation paperwork with the irs in order to become an S-Corp. The 25% rule applies.
Quote:
On 2004-10-01 14:42, blueford wrote:
Quote:
"No more than 25% of the corporation's gross income can be derived from passive investment activities."
I think the web site takes this info out of context. I believe the 25% rule only applies to S corps that were converted from a C corp, which most people do not have. If anyone knows anything different please let us know!