Schedule E Real Estate

There are many tax advantages for professional real estate agents to own and management real estate.  Here is why?  Passive income verses active income.  Passive income is money you earn without getting out of bed.   Active income is income you have to get out of bed to earn.  A job.

Real Estate is the one exception to this rule.  For example you own a couple of properties that you are actively managing.  Obviously, you have to get out ofb bed to manage the property.  However under the tax code real estate is considered passive income meaning you don't pay social security taxes on the income and you can only write off a percentage of losses against ordinary income.   However, real estate sales is not passive income it is active income.  Only real estate ownership and investment is passive income.

There is a question I often get, Joyce should I set up a different LLC for each property?  My answer is no. Unless.  First, to take advantage of the tax laws you just can't be a real estate sales agent you have to own real estate.    The properties should be actively managed and held in an LLC it does not have to be an S Corp because real estate investment income is considered passive income.  I do not recommend setting up multiple LLC's for each property.  To me that is a waste of money and a waste of time .

Rule #1 in business.  It needs to make sense.  Multiple LLC's from and legal or tax position does not make sense.  It only makes sense if you have different partners.  What you are protecting yourself from is any liability that your partner may cause. For example one partner get's a divorce.  Now your investment is subject to the divorce court. 

But if you own all the properties yourself there is no need to set up multiple LLC's for each property. There is zero tax advantages to this strategy.  Get yourself a good insurance policy.  Which you need anyway and save your money.