You may have heard people let you know “Always utilize LLCs for real estate”, and someone else may say “Always hold your real estate in a Trust”. As a genuine estate investor, it could be both confusing and frustrating to get such definitive, yet contradictory advice. As a result, a lot of investors are left to wonder – which one is right just? Well, the answer again is: IT DEPENDS!
Unfortunately, inside our complex taxes code, there is no “easy way” to offer an answer. Also, there is absolutely no “one size matches all” strategy that works for all those real estate investors. An analogy I often make is: Offering tax advice without first understanding everything about the taxpayer is the same as a doctor prescribing medication without first performing a diagnosis. In both the medical and financial field, this is known as malpractice. Every taxpayer is exclusive and different. As such, the BEST legal entity(s) to carry the title to your real estate investments will depend on your individual, business, investing, and overall tax situations.
The answers to all the questions above will help your advisor in determining the perfect legal entity framework for your investment. It really is true, an LLC can be a great entity for those buying real estate. But there are times when holding your investments in an LLC will lead to significantly higher taxes vs. Corporation or a Trust.
Step One: Spend time and think about your answers to the 5 planning questions above. …