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Do LLCs Protect Real Estate Investments

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Investment properties can create liabilities as any rental-property ownership is usually tied down with intrinsic financial risks.

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Do LLCs Protect Real Estate Investments

  1. 1. Do LLCs Protect Real Estate Investments
  2. 2. Investment properties can create liabilities as any rental-property ownership is usually tied down with intrinsic financial risks. It is always advisable for precautionary measures to be taken to protect the investor and his or her investment, and forming an LLC may very well be the first step in sound risk management. A limited liability Company, or LLC, is presently the favored asset protection means for most real estate investors. As an LLC combines the best attributes of a corporation and a partnership, with it, the investors’ personal assets, including the primary residence, are generally protected from claims by creditors of the LLC. The investors gain personal liability protection, tax advantages and other benefits, as well. A lot of owners of income-producing real estate like to operate under an LLC because their personal assets, such as stock, bank accounts, vehicles and their other LLCs, aren’t at risk if an accident or other incident occurs on premises or if undesirable flaws in it suddenly surface. Tax benefit The primary attraction of the partnership form is pass-through taxation. In the early years of a real estate investment, high interest payments and depreciation create tax losses. When the property is held in an entity that is subject to pass-through taxation, the investors get to take the tax losses on their personal tax return, and thus they get to build equity and have positive cash flow while reducing their taxable income. In addition, the property will also be appreciated at the same time. Many a times, LLCs are the preferred entity for ownership of investment real estate. For LLCs, there is generally no tax liability incurred on contributing assets into or distributing assets out of the LLC to the members. This flexibility is one of the primary reasons an LLC is the favored entity for holding title to investment real estate. Corporations are usually disfavored for holding title to investment real estate as the property cannot be distributed out of the corporation without triggering a taxable event. Holding investment real estate as an individual or general partnership does not provide limited liability protection. Llc taxation can be greatly simplified with the help of a tax expert. If you are one of the many investors in real estate you should consider holding your investment property in a limited liability company rather than personally. The benefits of holding title to investment property in an LLC include limited liability protection, pass-through tax treatment of profits and losses, and the ability to transfer property in and out of an LLC with minimal tax consequences.
  3. 3. Read More About: How To Complete Your Individual Tax Returns, Information On Tax Planning, Irs Amnesty Foreign Accounts, Llc Tax Classification

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