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CTM99
Returning Member

Are their tax benefits to putting rental properties into LLC?

We've had a couple of rental properties for a long time. (Thanks TurboTax for handling that.)  A friend recently mentioned advantages to putting each in its own LLC.  It seems the main advantage is in limiting liability of each property. However, they mentioned they heard  of TAX advantages but had no details. ????  Are there tax-related benefits? (We live in NY state.)  Thanks for any help.

5 Replies
tagteam
Level 15

Are their tax benefits to putting rental properties into LLC?


@CTM99 wrote:

A friend recently mentioned advantages to putting each in its own LLC.  It seems the main advantage is in limiting liability of each property. However, they mentioned they heard  of TAX advantages but had no details. ????  Are there tax-related benefits? (We live in NY state.)  


What you gain is some insulation from liability but, frankly, you would be far better off with ample liability (and casualty, of course) insurance including, possibly, a personal umbrella policy, or rider. As far as actual federal tax benefits, there are virtually none. 

 

Hopefully, someone else will respond to any NY state benefits that might result. 

Critter
Level 15

Are their tax benefits to putting rental properties into LLC?

I agree ... the effort of putting rentals in an LLC is not worth it ... get a good insurance policy instead.
TomYoung
Level 13

Are their tax benefits to putting rental properties into LLC?

And there's frequently a tax penalty associated with creating an LLC, not a benefit.  California charges every LLC an $800 dollar franchise tax every year, even if the LLC loses money.  Make more than $250,000 and the state tacks on additional "fees."

John F
Level 2

Are their tax benefits to putting rental properties into LLC?

While the primary purpose of this forum is presumably tax advice – and your question specifically mentions “tax benefits”, I would like to offer the among the advantages of using an LLC as an intermediary entity between you, as the owner, and your residents – it does ‘cloak’ or hide your identity from potential snoopy others.

 

As a curious investor, I have looked up individuals’ names under databases to determine how many properties they may own.  If they had operated under an intermediary entity between themselves and their residents, their known public ownership would have been greatly reduced or eliminated. 

 

One may also consider the use of land trusts to further insure anonymity.  Naturally, I whole heartedly recommend and endorse being completely responsible for your property regardless of how the title or the selected entity is used.  I mention this as to being less notable to the extent of your holdings.

tagteam
Level 15

Are their tax benefits to putting rental properties into LLC?

Re identity obfuscation, that is a good point but can easily be defeated depending upon the state in which the entity is organized. 

 

In some states, for example, it is a simple matter to search for the name of the entity and then be able to view the principals, or what one may presume are the principals (e.g., all of the managers in an LLC and all of the officers in an S corporation). Although shareholders and other members may not be listed, one can generally presume that the officers or managers are also the principals in small entities.

 

The yield out of this is that there is some protection from disclosure, but it does not amount to much in some states. There are ways around this situation but they involve playing shell games which gets complicated and somewhat expensive.

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