Buying House, Thinking S-Corp
I won a bid on a HUD home yesterday we intend to fix and sell. We signed the contract with HUD using our own names(wife and I). I am thinking of starting an S-Corp before taking title for tax and liability reasons. Could I then buy the house from HUD at closing with the business name since we signed personally? Also, will my lender allow it? I have no problem personally gaurenteeing the loan, I just dont want them to not fund it because we will use a company.
Whether or not one should use a business entity for the occasional property flip is not really an income tax issue, instead it is a legal issue (liability).
I currently do my rehab flips (I have two projects underway now) without a business entity. Quick financing is easier and since my holding period is so short, I did not consider it worthwhile to establish a business entity just for the occasional rehab project.
I have been told that a rehab flip carries more liability than the wholesale flip. The thinking is that if your work creats a hazardous condition, or a defect in your workmanship contributes to a personal injury, you may be liable. A business entity, such as the LLC (perhaps treated as an S-Corp) would make sense for someone in the business of rehabbing just to contain the liability exposure..
If I get to the point where I do more than just two rehab projects a year, I will probably explore the legal protections afforded by a business entity, too.
This question is probably more appropriate for the legal forum.
Thanks
I was under the impression that rehabbing a property and selling would be active income and that having an s-corp or llc taxed as such would cut down on some of my self employment tax. I understand it costs money to set up but why wouldnt I save on taxes.
Newkid, what kind of liablility insurance are you getting without an entity? Just property insurance?
Okay in California it only cost 115 to form a corp. S or C.
you have 45 days to determine the status... there is a 25 dollar fee to file the "who the officers are" form and an 800.00 fee to the franchise tax board unless you don’t make money.. then first year is waved...
I think a thousand bucks is a great insurance policy...
[addsig]
This is a great thread. Thank you all for your help on this.
Bill
Quote: I am thinking of starting an S-Corp before taking title for tax and liability reasons...I have no problem personally gaurenteeing the loan, I just dont want them to not fund it because we will use a company.
I am curious and still learning...can you tell me what you think an entitiy will protect you FROM--especially if you personally garantee the loan? An example would be most informative...
Also, if you could comment on what I have heard about the aditional "hidden" costs of entities.
1. Hgher loan costs including higher rates?
2. Higher insurance costs, some companies will require "commercial" policies for entities?