Author Topic: Rental property: Did I screw up?  (Read 2390 times)

gentmach

  • Bristles
  • ***
  • Posts: 315
Rental property: Did I screw up?
« on: April 05, 2017, 08:44:33 AM »
My brother and I got a building. I already put it into an LLC to protect our assets. The next phase was to invest with it until.we had enough to cover essential expenses. I am aware that you can only do 25% income this way.

But my accountant tried to dissuade me from doing it.
His points were:
1. More complicated Tax prep.
2. Annual fee.
3. Keeping accurate records. (My brother isn't going to contribute much. It's pretty much all me.)

I knew this going in with the LLC. But is there something I missed? Is it going to radically changed my taxes?

The second part is the building needs extensive renovations. I've been following mustaches 50 percent rule. But now I am splitting the 50 between investing and the building. Should I just focus on the building or keep doing half and half?

Vindicated

  • Handlebar Stache
  • *****
  • Posts: 1109
  • Age: 35
  • Location: Indianapolis
Re: Rental property: Did I screw up?
« Reply #1 on: April 05, 2017, 09:00:39 AM »
If your Brother isn't interested in participating, perhaps your first step is to buy his half out.  That way you don't have to worry about the split at all.

Sorry, I can't offer advice on your questions.

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Rental property: Did I screw up?
« Reply #2 on: April 05, 2017, 09:08:22 AM »
Putting your brother in turned the purchase into a partnership with or without an LLC.  You could give your brother virtual equity (ie a piece of the profits and/or eventual sale) without making him a partner.

If you want to avoid the partnership return, remove your brother from the partnership.

gentmach

  • Bristles
  • ***
  • Posts: 315
Re: Rental property: Did I screw up?
« Reply #3 on: April 05, 2017, 11:09:22 AM »
My grandma gave us both half. My accountant was okay with the partnership but disagreed with the LLC.

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Rental property: Did I screw up?
« Reply #4 on: April 05, 2017, 11:35:20 AM »
There is no added complication of having an LLC at the federal level for a partnership.  An LLC taxed as a partnership requires the same federal return a partnership w/o an LLC requires.  There may or may not be an additional state filing.

I'm a CPA.  My real estate holdings are in LLC's based on the advice of my attorney. 

MrSal

  • Pencil Stache
  • ****
  • Posts: 873
Re: Rental property: Did I screw up?
« Reply #5 on: April 05, 2017, 12:20:51 PM »
There is no added complication of having an LLC at the federal level for a partnership.  An LLC taxed as a partnership requires the same federal return a partnership w/o an LLC requires.  There may or may not be an additional state filing.

I'm a CPA.  My real estate holdings are in LLC's based on the advice of my attorney.

independent LLCs for each property or all properties under 1? Id figure the safest if you have several is having 1 property per LLC ...

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Rental property: Did I screw up?
« Reply #6 on: April 05, 2017, 01:10:00 PM »
There is no added complication of having an LLC at the federal level for a partnership.  An LLC taxed as a partnership requires the same federal return a partnership w/o an LLC requires.  There may or may not be an additional state filing.

I'm a CPA.  My real estate holdings are in LLC's based on the advice of my attorney.

independent LLCs for each property or all properties under 1? Id figure the safest if you have several is having 1 property per LLC ...

I'm not an attorney.  In my state it's $150 or 200 per LLC.  No annual filing requirements w/the state.  No added complications to my tax return. 

tralfamadorian

  • Handlebar Stache
  • *****
  • Posts: 1213
Re: Rental property: Did I screw up?
« Reply #7 on: April 05, 2017, 02:09:49 PM »
But my accountant tried to dissuade me from doing it...

As a real estate investor (not an attorney or tax professional), your accountant's reaction strikes me as a little odd.  Does he/she have much experience with real estate? 

1) LLC =/= different tax filing.  Your LLC can be taxed as a pass-through, S corp or C corp; that your accountant would not discuss the pros/cons of those tax options would concern me. 

2) Fees vary widely by location.  In my area, they are $50/year.

3) This comment was referring to "piercing the corporate veil".  Keep a separate checking account for the property that only that property's income and expenses go through.  Make sure to sign any paperwork as "Mr. Gentmach, Co-owner Building LLC" instead of just "Mr. Gentmach".  If this is your first rodeo, an hour with a recommended real estate attorney in your area may be a good investment for a checklist of do's and don't's around this but really, it's not complicated. 

gentmach

  • Bristles
  • ***
  • Posts: 315
Re: Rental property: Did I screw up?
« Reply #8 on: April 05, 2017, 02:41:40 PM »
I think my accountant was just worried about costs more than anything. I had already began the process with a lawyer before asking my accountant. He may have been worried we set it up as an S Corp. And something about since I am partnered with my brother, we don't get the same benefits we would get as compared to a spouse or multiple partners.


Midwest

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Rental property: Did I screw up?
« Reply #9 on: April 05, 2017, 02:50:45 PM »
I think my accountant was just worried about costs more than anything. I had already began the process with a lawyer before asking my accountant. He may have been worried we set it up as an S Corp. And something about since I am partnered with my brother, we don't get the same benefits we would get as compared to a spouse or multiple partners.

Did you set it up as an S-Corp?  That would be bad for real estate. 

The LLC is a completely separate issue from being partnered with your brother.  LLC's taxed as disregarded entities (not available when you have a partner) and LLC's taxed as partnerships are really common structure for real estate. 

Unless there is something you are not telling us, LLC taxed as a partnership is a logical choice.

gentmach

  • Bristles
  • ***
  • Posts: 315
Re: Rental property: Did I screw up?
« Reply #10 on: April 05, 2017, 04:58:46 PM »
It's a partnership.

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Rental property: Did I screw up?
« Reply #11 on: April 05, 2017, 05:04:20 PM »
It's a partnership.

If you accountant is worried about the costs of an LLC, I would ask him to be specific.  There is no additional cost at the federal level for the set up you described.