In my opinion, the conversion is a developer activity and an active business. I assume that the purpose of the conversion is to sell the condos and get out of the landlord business. The sales will still be subject to dealer disposition tax treatment and ordinary income tax rates still apply.
run this by an attorney but think about this scenario. Sell the "rental LLC" to a "developer LLC for the expected sell-out value. Then take back a note giving time for the closings on the units. The "rental LLC" would receive capital gains and the "developer LLC" would have little to no ordinary income to claim.
I like the ideas in the last post. My only change is that I perfer an S-corp with a management company. The s-corp will take the position that there is no reason to have employees since a contract with a mangement company to handle all affairs is in place. Make sure you pay your management company well.
An LLC is considered a disregarded entity for taxation purposes. Your active business in an LLC would be subject to self employment tax (15.3%). An S-Corp passes all profits directly to the shareholders of the company. The IRS has and will make the argument that there must be employees to run the company and that distributions should have been taken as a salary thus taxing you the same. However, with the large gain expected on condo conversions, and utilizing the 2 entity concept, you can make the argument that the S-Corp was an investment company and all labor was done through the property management company and thus you don't pay self employment tax with that entity. You will have to take a salary with the management company but a property manager doesn't make a whole lot compared to the investing activities.
In my opinion, the conversion is a developer activity and an active business. I assume that the purpose of the conversion is to sell the condos and get out of the landlord business. The sales will still be subject to dealer disposition tax treatment and ordinary income tax rates still apply.
Just my opinion.
run this by an attorney but think about this scenario. Sell the "rental LLC" to a "developer LLC for the expected sell-out value. Then take back a note giving time for the closings on the units. The "rental LLC" would receive capital gains and the "developer LLC" would have little to no ordinary income to claim.
I like the ideas in the last post. My only change is that I perfer an S-corp with a management company. The s-corp will take the position that there is no reason to have employees since a contract with a mangement company to handle all affairs is in place. Make sure you pay your management company well.
not sure I understand the necessity of the "s" corp since it is already an LLC.
An LLC is considered a disregarded entity for taxation purposes. Your active business in an LLC would be subject to self employment tax (15.3%). An S-Corp passes all profits directly to the shareholders of the company. The IRS has and will make the argument that there must be employees to run the company and that distributions should have been taken as a salary thus taxing you the same. However, with the large gain expected on condo conversions, and utilizing the 2 entity concept, you can make the argument that the S-Corp was an investment company and all labor was done through the property management company and thus you don't pay self employment tax with that entity. You will have to take a salary with the management company but a property manager doesn't make a whole lot compared to the investing activities.
I hope this clarifies things for you.
it does, thanks.