Personal vs Company Owned U.S. Real Estate Investment Properties

U.S. investment property is usually defined as real estate that is primarily purchased to buy and sell for a profit in the future or to produce rental income. However, there are several factors to take into account when deciding to purchase an investment property. Understanding the many components of investment property ownership can avoid a lot of headaches down the road. Many investors with real estate investment properties own them personally. A more prudent way to own real estate for investment purposes is to transfer ownership to a Limited Liability Company (LLC). This method not only protects it’s owner-member’s personal assets ; cash, equity in real estate, primary residence, investment accounts, retirement accounts, etc. – from litigation; but it also allows for flexible profit distribution among their members.

Legal Benefits

The primary reason to form an LLC is for the legal protection it offers. If the owner has a personal creditor, the creditor generally cannot make a claim on the property owned by the LLC or other corporate entity. Should any tenants, their guests, or anyone on the property sustain any injuries, and if the property is owned in the client’s name, the owner’s personal assets are at risk. Example: An owner has a rental property that is occupied by a young couple. They have a holiday party and one of their guests falls down stairs and is hospitalized. The guest sues the owner for his injuries, stating the stairs were hazardous. If the guest successfully wins the claim against the owner, any judgment in excess of the liability insurance can be satisfied with the owner’s personal assets.

Tax Benefits

From a tax perspective, an LLC formed with two or more members is classified as a “pass-through” company. A “Pass-through” means its income is passed through to its owners and claimed on those owners’ individual tax returns. Hence, it is subject only to capital gains rates on the ownership shares of the member, and not to corporate capital gains taxes, therefore there is no double taxation. LLCs with just one owner-member, however, are taxed as a sole proprietorship and no separate tax return is required. Actual tax dollars saved from holding real estate in an LLC opposed to personally holding the properties is zero. As of 2011, if you own income property and actively participate in the management of the property and your adjusted gross income is less than $150,000, you can write off up to $25,000 in rental losses. The amount of rental losses that you can write off is proportionately phased out between $100,000 and $150,000. For example, if your adjusted gross income is $125,000, you can write off $12,500 in rental losses in the year of the loss. If your adjusted gross income is $150,000 or more, you cannot write off any rental losses on your tax return in the year of the loss. Also remember that although the loss is disallowed for that particular tax year it is not completely lost. When you sell your income property, you can write-off any unused rental losses that have accumulated while you have owned the property.

Estate Planning Benefits

The formation of a LLC for the purpose of holding investment real estate has estate planning advantages as well. It allows for the transfer of ownership in the property in a more seamless manner than if personally owned. In many circumstances property owners wish to gift certain percentages of their real estate to children or other family members. For real estate not held in an LLC this process can require many trips to the county courthouse to update deeds that will require changes every time percentages of ownership change. In cases where real estate is owned in an LLC, the owner-members can simply issue membership certificates to the child or family member and no changes need be made to the deed with the county.

Whether you own twenty properties or one, owning them personally can be a major liability. All of your hard work and planning that lead to the ability to own real estate could be wiped out with one misfortune. For more information or looking for US  rental income tax services, please contact AccXpert TaxServices at 613-600-6988 or email to

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