Re: Incorporation Info - Posted by Nate
Posted by Nate on January 16, 2001 at 17:04:39:
Before I answer your question I’d like to ask one of my own: WHY are you planning to incorporate?
There are two main reasons people decide to incorporate: personal liability and tax reasons.
The first, personal liability, can be easily achieved with several more-flexible structures such as an LLC, business trust, or PacTrust. If that were your only reason for incorporating I would advise you not to do it.
Second, tax reasons. Although a corporation can have tax advantages, it can also have tax disadvantages. Generally, income from the ownership of rental property is considered “passive” income by the IRS. For the most part, you do NOT want to transfer passive income into a corporation. For one, if a corporation gets too much of its income from passive activities, its tax status can be jeopardized. A corporation is better suited to “active” activities such as managing rental property as opposed to owning it. Another consideration is that you can only deduct passive losses (e.g. from depreciation) to the extent that they offset passive income. If you have no passive income personally, but rather transfer it all into the corporation, you will lose this tax deduction.
Before you go any further with this plan I encourage you to post more on here about your reasons for wanting to incorporate. It doesn’t sound like your plan is well though out yet and the folks on here can help you with some of the thinking out. It also might be of benefit to talk to a tax advisor for an hour or two to make sure you are doing something that will benefit you.