Land trust / Incorporation Setup Question - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on March 11, 1999 at 20:50:36:

I know that Bronchick and others recommend setting up your rental properties in individual land trusts that name your LLC as a beneficiary.

Another setup has come to me, and I was wondering if this might work. First, set up a S-Corp. This type of corporation does require a tax return at the end of the year. When you purchase property, do it through a land trust, naming your S-Corp as the beneficiary. You will still be able to deduct all of the expenses of the rental (mortgage interest, repairs…), and the rental income is considered income to the S-Corp. This way, if you spend more money on repairs than the IRS allows on your Schedule E for passive income, these repairs would net out on the S-Corp return before ever getting to your personal return.

When (or if) you ever go to a bank for a new mortgage loan, if you have purchased your properties using owner financing, the mortgages do not come up on your credit report. Most banks want to see your tax return, and here they would see the owner-financed properties and mortgage expenses on your Schedule E if you use a LLC. If you use an S-Corp, no properties would show on your personal return. Only the income from the S-Corp will show on your K-1.

One possible disadvantage is in the liability arena. I have heard from LeGrand tapes and others that if you take title in the land trust, and someone sues, all they can possibly get is in the land trust. If this is true, what benefit (other than simplified reporting) would the LLC have ? If I use an LLC, can the judgement still attach to the land trust ?

Any and all advice is sincerely appreciated