Heather, a member of our School of Tax Strategy, asks the following question about which entity to use for real estate?
Q: We have recently formed our LLC. We plan to buy mobile homes and re-sell some and lease option others. The other part of our business is to buy- fix - sell single family homes. I'm confused on our business tax. We have no income yet and we have business expenses already. Are we sole proprietorship, partner, C or S corporation? As I read the information, each seem like they apply...Thanks.
A: An LLC can be taxed any way you choose. You have several types of business going on. Your mobile home leasing business is a real estate rental business. Your buying and re-selling of mobile homes is a dealership business. Your fix and flip is a dealer or development business. The dealer and development businesses need to be separated into a different entity than your real estate rental business. Otherwise, you will have some nasty tax consequences.
Frequently, I like to see dealer/development businesses operated out of an S corporation and rental real estate businesses operated out of a sole proprietorship or partnership. My best recommendation is that you meet with a tax strategist who specializes in real estate tax strategies. If you would like help finding such a person, please call our office at 866,467.5809 and ask for Siggy.
Warmest regards,
Tom