Why S-Corporations Are A Horrible Idea For Owning Rental Real Estate
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- Опубликовано: 4 окт 2021
- Today we are talking about the reason S-Corporations are horrible for real estate investors!
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ABOUT CLINT COONS
Clint Coons, Esq. is one of the founding partners of Anderson Law Group, Clint has grown his legal and tax firm to over 400 employees by assisting real estate investors with creating and implementing solid entity structuring plans. His success in these regards is in large part due to his personal investing experience. A successful attorney, real estate investor, and speaker, Clint has used his innovative and dynamic strategies coupled with knowledge borne from experience to help thousands of people save millions of dollars and build real wealth.
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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Anderson Business Advisors with its main office at 3225 McLeod Drive Suite 100 Las Vegas, Nevada 89121. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Anderson Business Advisors or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice.
#scorp #rental #realestate
Learn about Real Estate & Asset Protection at our next all-day free live stream Our attorneys and specialists will answer ALL questions: 👉 Save Your Seat: aba.link/b1d0c3
Thank for this info Clint!
You are welcome.
This is very good information. I'll need all the protection I can get while towering over Amazon.
Really appreciate 🙏🏼
Glad it helped
just what i needed to hear. Thanks!
Glad to help!
Excellent video!
Thank you very much!
Im glad I found your channel! One of your vids helped me with estate planning.
They have a couple one time fees depending and service and a very low retainer.
Consider calling them. Worth it.
@@StreamingF1ydave calling what?
Anderson Associates
That is awesome!
"groan" once again I am the "what not to do" example
Hi Clint I've watched a video of yours where you mentioned about starting your llc in Wyoming so you can get Anonymity protection. I live in NY and was thanking to find a closer state than Wyoming. it appears that Delaware provides Anonymity as well is there any advantages and disadvantages on either WY and DE.
Both are great. We use them interchangeably.
I appreciate the insight. If an S-Corp is not your recommended entity, what entity would you recommend and why?
I would use it for running an active business I.e., real estate broker.
Hi Clint how would I go about moving two rental properties from an LLC S-Corp to a Land Trust without creating a taxable event? Would it be similar to how you created disregarded LLC's owned by the S-Corp?
Yes. The S-corp will be the sole beneficiary of the land trust.
Chess vs checkers as always from Clint.
Hi Clint thank you. What if your rental is an STR? If I have a high W-2 income, would an LLC taxed as a C-Corp prevent me from using the STR loophole to offset my regular income?
Yes it would. You should set up the LLC as a partnership or disregarded for the flow through tax status.
Hi Clint, so once its moved to the subsidiary LLC, and I can move the property out of llc and put into personal name to get refinance and not trigger any tax event ?
Yes provided your LLC is not taxed as a corporation.
I have some rental homes in California handled by management. I recently had moved to Oregon and found out the ftb is requiring the manager to withhold 7% of rent to be sent to the ftb. To qualify for exemption I have to get a LLC or corporation license. Was wondering which type of license is best fitted for this scenario?
It is my understanding you only need to set up an LLC to avoid the withholding.
I really appreciate you taking the moment to reply to my question.
Your videos are very informative and helpful. Thanks
Hi. My commercial multifamily building (12 units) is an LLC entity. Last year taxes I filed on S-corp entities. I am the only owner, no partnership. Does it mean that if I will need to refinance it the bank wants me to deed the property out to myself? Or is it valid just for the residential properties and loans? Thank you
If the bank requires you to deed the property out and it is picked up on an audit - you could have a taxable event.
The disregarded llc's that are owned by the scorp, are these considered Series llc's?
No. The disregarded LLCs are separate companies. To have a series LLC you must create it along with cells.
What about if it’s a commercial multifamily property? Would you still have to pay taxes during a cash out refinance?Thank you in advance
If its in an S-Corp you may.
Hi Clint. We have an old c corp that owns our business real estate. We're considering selling the land but want to avoid taxes as best we can. Any advice?
Sorry but no easy answer to this one. You really need to work with a CPA because tax basis I really important in the planning.
Hi Clint,
I'm new in Real Estate (AirBnB). Which one LLC or S-Corp I should choose for my AirBnB business. Thanks
Both. One to hold the property and another to manage it. However, your tax status is important in deciding on the proper structure so it's best to have a consult. If you would like a FREE 30-minute consultation, you can request one here
- aba.link/30minSession
I have been trying to schedule the consul and possible order some services , but never even can call in or any one answer the calls . contacted via website too, but so far not even had a chance , are you guys that busy ?
Victoria email me your contact information to ccoons@andersonadvisors.com and I will have someone reach out.
Purchased a property 5 months ago with my S-Corp. As its been less than a year, if its transferred to myself personally, is it still taxable? Need to do a refi or get a LOC against it cause I purchased all cash.
Probably not if it did not hit your S-Corp's tax return. If it hit the return then you might have an issue if the value has increased unless you deed it back after the refi.
What about if I continue to work full time? Is llc beer or s-corp for my rental property?
LLC is the preferred choice with a disregarded or partnership tax election
@@ClintCoons my accountant told me that because our w2 income is already high, we won't be able to claim deductions for purchasing and furnishing and operating the rental property. But if we open a s-corp, we are allowed to have deductions. Is this true.
@@sumayahzn I'm not sure how the S-Corp will change anything for you.
So would it be alright to have an LLC holding company in Wyoming set up as an SCORP be the owner of a subsidiary LLC company that holds residential rental property in California or Florida? 🤔
You could but why use an S-Corp tax status and not partnership.
Rumor has it that it's nearly impossible to get a loan (HELOC or 1st TD) against an SFR that's already owned by an S-Corp. Could you please shed light on this? Should such property be deeded into an LLC whose one and only member is the S-Corp? Would getting a HELOC after that transfer be easier?
correct. If you are in that situation consider moving it into a disregarded LLC owned by your corporation but that may not work if the broker asks for tax returns.
What if the S-Corp creates a Land Trust with itself as the Beneficiary. After the Trust has been created, do an Assignment of Beneficiary to the individual. Once that's done, the individual can get a loan on the property. Would that work?
@@terrycrawford6740 Probably not if the lender asks for tax returns to verify the income.
I'm referring to a case where the individual has enough personal income to get the loan approved. Would my strategy work?
So what kind of a set up should one use besides an s corp
if you own an LLC that elects to be taxed as a Subchapter S Corp, and the LLC's only asset is a single property leased on absolute NNN terms, do you need to pay yourself a salary in the eyes of the IRS, or is the "reasonable salary" $0 because of minimal responsibilities?
It could come up but I would just take distributions until such time as the IRS comes knocking. I am not aware of too many real estate S-Corps that pay salary.
So is it an oversimplification to say that all of this complexity can be avoided if one simply set up an LLC C Corp for rental property?
No you do not want to use a C-corp. This will have a potentially worse tax result. I prefer to use partnerships and disregarded entities.
@@ClintCoons could you elaborate on this, which one should you use partnerships or disregarded entity
@@quanticowoodard3946 It depends on your situation. I suggest you set up a strategy session with my firm so we can assess your situation.
If I have a holding company that is a s corp and the real estate is owned by the llc the is llc taxed because of the holding company?
If the LLC is held by an S-Corporation then it is probably disregarded.
@@ClintCoons Was this posted?
@@roflofl Was what posted?
What if the s corp owns the LLC?
No difference.
Moving real property from S Corp to disregarded entity wouldn't be treated as a sale?
Not if the S-corp is the sole member of the LLC.
@@ClintCoons oh I see..thanks for this information. Very helpful video.
Hello great video,
Instead of setting up an LLC can you use insurance to protect yourself against lawsuits?
I like the LLC idea, but in Tennessee it’s around about $800 for each LLC.
Is the LLC cost tax deductible?
Thanks
Bill
Any business expense is deductible. I have my rentals in LLCs which are owned by a Wyoming LLC for anonymity. Wyoming is one of the very few states that offer anonymity and charging orders. It’s a good structure. It’s like an iron vault and creditors can never break through it. In fact they will probably just give up if they see this structure. Insurance alone may not cover everything.
Insurance has a cap on how much protection your guaranteed. Anything beyond that will come out of your pocket and assets
Actually there is an exclusion in Tennessee Clint talks about in other videos.
I don't recall it was LLC or using a land bank trust. I'm pretty sure they said it's an LLC fee exclusion for holding real estate specifically.
Additionally, you are on the right path. Using insurance is the beginners way with bad advice. Check out more of their videos. They explain why you don't want to rely on insurance.
For example, a tenant blows the property up cooking meth or even they kill someone or people from the event. You are now liable for wrongful death in the millions because even though he disabled the smoke detectors, you can't prove he did it. The court will assume you are at fault. Insurance isn't going to cover you since fire Marshall said your smoke detectors didn't work, etc. This is paraphrasing a real example. This is why you want an LLC. To limit your liability.
I do recall something about them being able to save someone a lot of money regarding Tennessee llc's because someone's CPA wasnt aware of the exclusion.
I looked it up, it's called a FONCE exemption.
Family owned, non-corporate entity.
So what are S Corps good for in real estate???
Management, flips, brokerage, agents, - it really comes down to the situation that is why I tell people it is not a one size fits all approach.
How about rental being owned by a C-corp?
Not recommended. The C-Corp will block your flow through depreciation and if you pull the the property out it will be taxed twice.
Had made up my mind to use a Scorp based on another video by you "How to Turn Your Personal Residence into a Tax Free Rental [ Check Out This Awesome Strategy]. What should I do if I want to partially rent out my primary residence and still live in the residence?
I would set up an LLC and not sell the property to an S-Corp.
What's better? A limited partnership?
LLC is preferable.
@@ClintCoons llc set up which way please, I am currently in the process of having an attorney set up one for me now, using an s corp but it is not done, which structure should be used?? Disregarded entity? Or?
@@quanticowoodard3946 It really depends on the LLC's purpose, your tax bracket, and who are the owners to list a few of the considerations.
I thought a SCorp can’t be owned by a LLC?
It can be owned by an LLC that is treated as a disregarded entity for federal tax purposes.
@@ClintCoons so how would you pay yourself a salary through your S-Corp if your let's say "New Jersey" S-Corp is owned by your Wyoming LLC?
@@lilharv7376 You set yourself up on payroll through the S-Corp.
@@ClintCoons So I could set up my New Jersey LLC taxed as a S-Corp as Member Managed with the only single member being my Disregarded Manager Managed Wyoming LLC & still set myself up on payroll in New Jersey through my S-Corp? or would I have to at least make the S-Corp in New Jersey as Manager Managed with me being the manager and the Wyoming LLC still the only single member?
@@lilharv7376 What are you planning to operate through the S-Corp? This level of detail - really should set up a strategy session. See the show notes for a link.
🤣🤣 "You've read somewhere you can save using an S-Corp"....No sir I literally came here from YOUR video on transferring your primary residence into an S-Corp as a Rental property to save on taxes with a 121 for 20 years taking the full liability in year 1 and collecting rent tax free for 19 years. 🙃
It all depends on the strategy.
That’s a lot of years. I’m hunting for property now. Can I ask how did you do that? 19years collecting rent tax free??? That’s amazing.
ABA set me up with S - Corp, so confused??????
Oscar it depends on your business. Remember planning is not a one size fits all. Every situation needs to be evaluated.
👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍
Thanks