Posted by JHyre in Ohio on March 17, 1999 at 11:05:16:
Assuming that there is no better option or way to placate the bank, you can form a sub corp to hold the properties. Dividends get passed through to mother corp almost tax free and the property is “separate”. If corps are expensive in your state (IL tax authorities and legislature are not very congenial) it may not be worth the hassle. NOTE: You can also hold the properties in the corp but create internal firewalls (“divisions”, corporate by-laws, etc.) making very clear that the properties are for investment, NOT sale. While it’s easier to show seperate business if assets are in different entities, such a split is not mandatory. Of course, the rents are now subject to double-tax in lieu of necessary amount of deductions to offset.
Is banker hip to seperate LLC holding properties & guaranteeing corporate debt? How about lending to LLC and then it contributes cash to corp for ownership OR makes a loan to the corp with bank proceeds? This avoids separation and double-tax issues- best of both worlds.