Real Estate has always been considered a safe investment since the supply is finite and the demand grows with the population. Even though we have seen some swings in the real estate market over the past decade, the theory still is held true by many. Purchasing a rental property is a common investment as individuals look to diversify their portfolio with reducing their risk in the stock market. Oftentimes individuals will buy their first home and keep it as a rental when they purchase their next home.
One downside to owning rental property is that you are at the risk for the liability arising out of any accident that might occur on your property. If the property is in your name alone, a lawsuit could expose your other assets to this risk. This is why it is advisable to place rental properties into a limited liability company ("LLC") to limit the liability exposure. Having an LLC provides an owner with a legal veil that will usually protect the owner's other personal assets from legal claims and limit what could be recovered in a lawsuit.
Most states have enacted Limited Liability Statutes. Since LLCs are governed by state law, it is important to understand the filing and annual reporting requirements within the state and how to effectively transfer title of the assets into the LLC.
An LLC has the advantage of pass-through taxation. This means that the LLC will file either as a partnership if there are 2 or more members (owners) or report the earnings directly on your individual tax return (Schedule E) if you are the sole owner. This avoids double taxation as corporations have to file a corporate tax return and then each individual owner files his/her earnings on an individual return, resulting in double taxation. You can avoid this by forming an LLC.
One downside to owning rental property is that you are at the risk for the liability arising out of any accident that might occur on your property. If the property is in your name alone, a lawsuit could expose your other assets to this risk. This is why it is advisable to place rental properties into a limited liability company ("LLC") to limit the liability exposure. Having an LLC provides an owner with a legal veil that will usually protect the owner's other personal assets from legal claims and limit what could be recovered in a lawsuit.
Most states have enacted Limited Liability Statutes. Since LLCs are governed by state law, it is important to understand the filing and annual reporting requirements within the state and how to effectively transfer title of the assets into the LLC.
An LLC has the advantage of pass-through taxation. This means that the LLC will file either as a partnership if there are 2 or more members (owners) or report the earnings directly on your individual tax return (Schedule E) if you are the sole owner. This avoids double taxation as corporations have to file a corporate tax return and then each individual owner files his/her earnings on an individual return, resulting in double taxation. You can avoid this by forming an LLC.
If you have any questions about business entities and tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.
Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.
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