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Tip #170:  Altered Egos

Landlords often consider the wisdom of forming a corporate entity to hold rental properties. The most common entity used for rental businesses is an LLC.

The pros of such a move include:

The possibility of shielding personal assets from judgements related to the rental property,

Easy tax reporting — pass-through to your personal return,

Inexpensive paperwork – often your Secretary of State can provide the forms, and

It may require only one person.

Some experts recommend forming an LLC for each separate rental property, rather than one for the entire business.  Another stategy is to form more than one LLC for each property — one to hold title, and one to manage the property.

Before you form an LLC, be sure to consult your attorney, your accountant, and your insurance agent to discover any land mines.

For instance, deeding existing property to an LLC may trigger an acceleration clause in your mortgage.  A better tactic may be to refinance into the LLC’s name.

See last week’s Landlord Quick Tip.

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