Revenue Procedure 2002-69 tells me that a single member LLC owned by a husband and wife will be recognized as a disregarded entity (1) when the business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States; and (2) no person other than one or both spouses would be considered an owner for federal tax purposes; and (3) the business entity is not treated as a corporation.
It appears that a married couple must organize their aingle-member LLC in a community property state for it to be recognized as a single member LLC. If you have an IRS reference that provides disregarded entity recognition for a husband/wife owned LLC in non-comunity property states, please post it here because I have not been able to find it at the IRS web site.
It is prevailing wisdom to have each rental property owned in its own LLC, however after awhile doesn’t this turn into an administrative nightmare? I assume each rent check must now get made out to each particular LLC so do you now need a separate bank account for each entity? Does each utility bill now get put in the name of each LLC. What about the added burden of tax returns and reporting requirements and registered agent forms, etc, etc. What do people do who have dozens of properties?
Re: Asset protection-Bronchick, Alcorn? - Posted by James Buster
Posted by James Buster on April 25, 2003 at 02:21:56:
I’ve come to like the idea of a separate business trust (not land trust) for each property, with the trustee being your corporation in order to consolidate management and recordkeeping. Watch out for state trust company laws, though. Having the corp be the trust’s agent instead should solve that problem. Beneficiaries should have no liability (but check your state, they have full liability in TX since business trusts are treated as joint-stock companies there), as well as anonymity. One QuickBooks file per property, one TurboTax return per file should make admin easy. Business trusts in many states do not have as burdensome a reporting requirement, especially when it comes to disclosing the relevant parties, and the required annual fees may be lower. Basically, I like them because you can get both anonymity of ownership and partitioned liability in a simpler structure than the LLC+trust combo.
As David said, LLCs are flow through so no issues there. And in NJ they’re rather cheap. A few properties in each should suffice I would say. It’s interesting to split the management and ownership. I would have to look into that a bit more.
Re: Asset protection-Bronchick, Alcorn? - Posted by David Krulac
Posted by David Krulac on April 21, 2003 at 14:43:51:
Hi Ben,
John Hyre believes that maybe 3 or 4 properties could be in 1 LLC with up to $250,000 in value. Those numbers may not work in NJ.
As far as utilities, and rent, one alternative would be to have a seperate LLC for management. that LLC would OWN nothing, therefore be virtually suit proof.
All rent check and utility bill could come to the management LLC.
Single member LLCs, which could be a married couple, don’t have to file federal tax returns as the income is transferred to the individual member. so having multiple LLCs doesn’t mean multiple tax returns.
Another alternative is to have each property in a trust, no state filing required and no tax returns. Multiple trusts could be under one LLC.
And where LLCs are costly, another alternative would be LP with a general partner of an LLC or S corp with very limited like 1% ownership. Have a seperate LP for each property with a 1% LLC general partner common to more than 1 or many LPs. The LPs have the benifit of not being corporately taxed in some states.
David Krulac
Central Pennsylvania
Central Pennsylvania