help needed for tax planning on properties

[mirealestate]

Hello all...  Posting this question as I am looking for some tax guidance on what to do next with property investments that I made, I promise I'll try to be a brief as possible.  When the market tanked in 08-09 I was able to purchase a property for approx 10% of the prior value.  After fixing up the house mainly cosmetic, we used as a cottage and let friend use as well for a few weeks here and there.   Being in the area frequently other opportunities came up with close proximity which I purchased with the idea this would be good to have down the road.   The purchase price was pretty low and the taxes as well so there wasn't a huge burden financially for me.   There are 3 houses thus far purchased in the past 6 years or so.   I am employed with a w2 so this wasn't my job, just investments that I came across.   Some were purchased with the idea of hold fix and rent out and over the years there is a lot of improvement done to each property along with general items purchased to be able to maintain and work on these properties.    These were all purchased at around 10% of the current value knowing there are updates needed.   

Properties are about 120 miles round trip from my main house and I visit at least 1-2x a week.  Major work like roofing/siding was contracted out.  Smaller repairs were completed by myself & father.  Needless to say over the collection of the past few years I haven't kept the best of books as this wasn't really a business, or I thought it wasn't.  At this point, I am looking to gain some of the benefits of owning these and properly do things as I plan ahead over the next year to have available as rentals and possibly selling one of the units or further developing/splitting land.  I do plan on putting an addition & building a garage next year on one of the properties so planning ahead for this year and next is needed. 

Are there any benefits to setting up an LLC or holding company from now for these properties before they are "rented" out?  Regarding deductions/tax benefits not sure what else can be claimed other than the taxes currently?   I'm no looking for a 2nd vehicle and after discussions with some friends, they suggested looking into setting up a business as this is what I have although there is no income just yet. 

Thanks for your assistance. 

Mark

[Critter-3]

An LLC or holding company for rentals is really not needed as you get no tax benefits from doing so ... a really good umbrella policy to insure them all with at least a million dollar limit would be a good thing to do.  At least one time sit down with a local tax professional to get educated in what you have and what needs to be done for both the federal & state requirements.  

[tagteam]

I agree with @Critter-3; there is little benefit and a good umbrella policy can be had probably for the same, or a little more, than the cost of compliance if you had organized a single-member LLC.

As an aside, I would opt for five million on the umbrella.

[mirealestate]

Thanks Critter-3... what you are saying makes sense for a sit down I will plan to do this soon.

[mirealestate]

Thanks tagteam - appreciate the feedback and will look into this suggestion.

[Carl]

Just happened upon this thread. Overall I'm not clear if we're talking about rental property, flipping property, or both. I get the impression it's a bit of both. I'm also of the impression that your acquisitions were more opportunistic than anything else.

If you're not "in the business" of flipping property (with no days rented), then establishing an LLC or any other business type for the activity really makes no sense. At best, if it was you and another person (not married to you) doing this, you might consider a partnership. But that's only for tax purposes and really has nothing to do with the liability factor.

You'd be better off with an umbrella policy at a minimum of $300,000 per property. Higher, depending on the location.

If you're looking at being a landlord, check out my notes at burchrentals dot dynu dot net foward slash Rentals/Rental%20Property%20Management.docx

It's a word document that documents all I've learned over 30 years of being a landlord.

[tagteam]

Umbrella policies will typically start at $1 million regardless of how many properties are owned.

The policies cover personal liability claims in excess of regular owner's liability coverage limits and they usually do not cover business or professional activities (for which business policies are normally required).

[mirealestate]

Hi Carl sorry it wasn't clear.  The future plans is both to fix and rent one and flip the other so you are correct.   Once the 2nd house was purchased then the mindset kicked in to hold and rent/flip in the future as well as looking for other opportunities in the nearby area.   I am a single unmarried person no other parties involved on this.  Ill check out the doc- thank you

[mirealestate]

Thanks for the input tagteam -