BUY PROPERTY IN YOUR OWN NAME OR THROUGH A COMPANY
During the last decade, limited liability companies (LLC) have become a widely used option for acquiring real estate in the United States. Despite the benefits that LLCs offer, they’re not always the best way to carry out real estate transactions. For many investors, the cost of starting and maintaining solution. Let’s explore the pro’s and con’s before taking action.
Benefits of Purchasing Through an LLC
- Protects the owner from possible property related lawsuits. This means that, in the case of a lawsuit, they can only go after a specific property and not any other asset.
- It allows the owner to deduct many of the expenses generated by the property.
- The LLC structure helps to avoid estate taxes. Since the legal entity never dies, even upon the death of the owner of the company, they will reduce inheritance taxes.
1. Ownership and Liability
- Individual: The person is the legal owner and personally liable for debts or legal issues.
- Company: The company owns the property, offering limited liability—personal assets are protected from business risks.
2. Taxation on Rental Income
- Individual: Rental income is taxed based on personal income tax rates, which can be high for top earners.
- Company: Rental profits are taxed at the corporate tax rate, often lower than personal rates, especially for high-income individuals.
3. Mortgage Interest Deduction
- Individual: Limited to a 20% tax credit on mortgage interest.
- Company: Can fully deduct mortgage interest as a business expense, which can significantly reduce taxable profits.
4. Capital Gains Tax
- Individual: Subject to personal capital gains tax rates, with some allowances.
- Company: Pays a flat corporate tax rate on gains, but may face double taxation if profits are distributed as dividends.
5. Succession and Estate Planning
- Individual: Property transfer may trigger inheritance tax and legal complexities.
- Company: Shares in the company can be transferred more flexibly, allowing strategic estate planning and easier generational wealth transfer.
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Jester Niño
Broker Associate
C5 | EXP Realty
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