EasyAnswers TIPS FROM AN ATTORNEY TO PROTECT YOURSELF — AND YOUR INVESTMENT.
“If I had unlimited funds, I’d help low-income families gain ownership in low-income communities. Opportunity Zones open doors for investors, but they are gentrifying areas. It might seem like it’s creating opportunities, but it’s actually putting a Band-Aid on the underlying issue, which is how to keep families in homes and give them ownership,” Joe said. Leaders of Integrity was established to bring aware- ness to the real estate investment industry, to quiet the noise, and to be a voice of trust. “Our philosophy is that the borrower comes first. If there is no solution, at least we have tried our best,” Shawn said. •
When it comes to your real estate investing business, asking questions is part of the job, especially during tax prep season. Think Realty Resident Expert, financial advisor, and attorney Clint Coons offers his advice to questions he hears from clients every day.
Q: I have three Airbnb properties that I own under one LLC. The properties are quite profitable so that is going well, but my tax preparer told me I must recognize all my rental income for the year as active income and pay a lot more in tax. Is this correct?
A: The answer is yes!
To avoid making the same mistakes this year, you should consider restructuring how you conduct your Airbnb activity. First, you should never keep three properties in the same LLC. If a renter is injured on one of your properties or the city changes its regulations concerning Airbnb, then all your properties will be at risk to a lawsuit or claim. I suggest you move the properties into separate LLCs for better asset protection. The tax problem can be minimized by setting up a C-Corporation and entering into a master lease arrangement with each of the LLCs. Your corporation will rent your properties on a long-term basis from your LLC then sublease the properties to the Airbnb tenants. With this strategy, you will keep more of your income as passive and capture the active portion in the Corporation that is taxed at a flat 21 percent.
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Have a legal, finance, or tax question that might affect your REI? Send questions to Think Realty’s editor at email@example.com.
Anderson Advisors is an affiliate partner with Think Realty. Learn more at andersonadvisors.com.
28 | think realty magazine :: january / february 2020
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