In our last post, we discussed use of a trust to purchase property. Those looking to purchase property can also use other legal structures to buy real estate. This post will discuss use of a limited liability company (LLC) as a vessel to purchase property.
What is an LLC?
An LLC is a business structure. This structure can provide the owner with liability protection. The creator can keep personal assets separate from business assets by having that asset owned by the LLC.
What is the benefit of having property owned by an LLC?
Two potential benefits include:
- Liability protection. If someone were to get injured on the property or a creditor was otherwise to come after the property, the dispute would likely remain within the property. It is unlikely the creditor could go beyond the LLC into the owner’s personal assets. There are certain actions that can weaken this protection. It is important to keep the LLC’s funds and the creator’s funds separate. A failure to do so could provide a loophole for the creditor to exploit and reach the creator’s personal assets.
- Tax advantages. Another potential advantage involves tax incentives. The Internal Revenue Service (IRS) generally taxes an LLC with a pass-through taxation system. This means the owner reports the LLC’s profits and losses on their personal tax returns.
It is important to note that those interested in these types of transactions should take more than just federal tax obligations into consideration. State and local taxes may also play a role. As such, it is wise to seek counsel to help reduce the risk of surprises before moving forward with this type of real estate investment strategy.