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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I am forming an LLC to hold one rental property and I would

Customer Question

I am forming an LLC to hold one rental property and I would like to choose to be taxed as a corporation to keep the property off of my personal return. Can I choose to reinvest all income back into LLC to eventually purchase another property and therefore not except a salary so that the LLC is not listed on my personal return?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D. :

Hello and thank you for using Just Answer,
If you choose to be an S corporation for the rental property, the rules are that the S corp is required to pay a salary to you. Even as an S corp the income is passed through to you. LLC and S corp are both pass through entities. A C corp is not but you would need to incorporate as a C corp and cost may be more than any savings. Plus a C corp is taxed on it's earnings and the dividends to the shareholders are taxed again.
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.
The S corp could purchase another property but the income earned would still be passed to you.

Robin D. :

I would suggest you go over the options with your personal tax adviser so you can see how the rental will effect your income. With depreciation and other expenses rental generally has a loss to show.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

JACUSTOMER-2pj32y10- :

Thanks for the info, but, I am not referring to an S corp or C corp. I am referring to an LLC and filing an IRS form 8832 to elect taxation as a corporation.

Robin D. :

That would mean you are asking to be taxed as a corp. That would mean that you will still have pass through to you. All I advised above would apply. You would still not get away from the pass through to you..

Robin D. :

Even though you can leave the money in the company the income and expenses would still be passed to you without any distribution to you.

Robin D. :

I am confused by your response. The LLC would be requesting to be taxed a sa corp but that does not change the pass through effect of the income. It is unfortunate, but that is the nature of the pass through, you would be taxed on teh income even if you do not distribute the income.

Robin D. :

You asked Can I choose to reinvest all income back into LLC to eventually purchase another property and therefore not except a salary so that the LLC is not listed on my personal return? The answer unfortunately is no, you cannot do that.

Robin D. :

I can understand that someone would not want to hear that (as no one wants to pay more tax) but I also understand that it is more important to be told the truth.