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February 24, 2024 | read

Entities Landlords Should Use

Brandon Hall

Entities Landlords Should Use

Entities are always a hot topic for real estate investors as they should be. Entities have both legal and tax impacts so it’s critical that your entity structure is set up appropriately by professionals.

Most real estate investors should only consider the use of LLCs and trusts for their rental properties. It rarely makes sense to hold rentals in corporations (S or C) as such a structure severely limits flexibility and causes unneeded tax implications.

Example 1: you buy a rental property in an S-Corporation and later decide you want to own it in your personal name. Unfortunately, transferring the property out of the corporation is a taxable event as the distribution is deemed to be a “sale” to the stakeholder.

Example 2: you flip a property in an S-Corporation but then decide to rent it out. Heeding the advice of your professionals, you know rentals should not be held in a corporation so you move it to an LLC instead. Yikes, moving the rental to a different entity structure is again deemed a taxable sale.

Stick with LLCs and trusts for your rentals unless advised otherwise. There are very limited exceptions to this general rule.

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