Rob Rowsell’s personal CPA is here to explain why property investors should form a real estate investment LLC. There are so many tax advantages built into this method of incorporation. Limiting liabilities, using cost segregations, and other investor tax tricks are just a few advantages to forming a real estate investment LLC. Rob also adds a few tips, and reminds us that the government needs to know we spend at least 750 hours on our property business in order for them to consider us a real estate professional.
Why Should Property Investors Form A Real Estate Investment LLC?
Rob’s CPA Kevin Bassett of Bassett and Associates joins the call. His first order of duty is to explain why we should form a real estate investment LLC. An LLC, or Limited Liability Corporation, is a great protection for your business, especially if you invest in multi-family rental properties.
One advantage of an LLC is the ability to use Cost Segregation. This strategy front loads your tax depreciation, but it only works if you have an LLC. Hire an inspector to come in and survey your apartments. If you have a $10 million complex, your inspector could break the units into components, possibly finding up to $2 million worth of accelerated depreciation. Fixtures, parking lots, and electrical items needing repair or updating. You can write this off right away, instead of over decades. This can wipe out some or all of a year’s income, saving you huge on taxes.
Kevin then lists other tax advantages to forming an LLC. These tax strategies include 1031 exchanges and long term capital gains rates, as well as installment sales.
Rob Rowsell Responds
Next, Rob adds the two reasons real estate investors should form entities. First, as we’ve discussed before, is for asset protection. Second, a Real Estate Investment LLC provides anonymity for you and your investors, if you set up your LLC to be managed by another party. This allows you to maximize your tax savings with the variety of deduction strategies Kevin mentioned. This benefit is available in many states, but not all, so consult your legal team and CPA before taking action.
Finally, Rob asked Kevin to outline the requirements one must complete in order to be recognized by the US government as a Real Estate Professional. We must verify that we spend 750 hours per year working in the industry. This means managing, acquiring property, and even long term holds. Construction contractors may also qualify for the real estate trades. In order to be certified, you also must prove that you spent more time working in real estate than any other trade. We discuss how to log these hours in another post.
Join Our Real Estate Investment Community
Do you own multi-family properties? If not, do you aspire to one day? Then you should consider joining our online discussion group, the ATL Inner Circle Community! Each month, Rob Rowsell will teach you what you must do in order to build wealth in the real estate business. It’s not as easy as it looks! Property taxes, liens, and legal fees can all be hard to navigate, so having a successful guide in your corner like Rob is a must! Sign up today!
