Should I open a holding company and an LLC for my investment property?

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Should I open a holding company and an LLC for my investment property?

I am thinking about renting out my one bedroom co-op (which I own) and buying a 2 family house. I will occupy one apartment and rent out the second unit. I was told that I should open up my own company for “tax reasons”. I was reading that I should open a holding company that owns 100% of the LLC that I would also need to open. Does anyone know what the advantages and disadvantages are? What’s a good strategy?

Asked on March 6, 2012 under Real Estate Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You should speak with a CPA, tax attorney, and/or financial planner (preferably, one with a CPA or JD) about your situation in detail. There is no simple, one-size-fits-all answer, since the specifics of your finances, the property, your goals, etc. determine what is the right thing to do.

All that said, there are good, non-tax reasons to own investment property through an LLC (or, for that matter, a corporation, such as a sub-S): you want to limit your personal liability for business debts (e.g. property tax; loans; amounts owed utilities and contractors) and for any possible tort-based liability (e.g. what if somone slips and falls at the property because a stair was loose?). Therefore, while you should discuss your situation in depth some tax or financial-related professional and follow his/her advice, I assume you will in some form own the property through an LLC or other business structure, so as to protect your personal property, income, and assets.


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