First time on this site - very impressive. Need some expert opinions on this issue. Client has a few rental homes & has been filing Sch E on his 1040. He is starting to get more active w/ rentals and may purchase an apartment complex and possibly some commercial property. He plans on hiring a property mgr. and will keep his day job. He is concerned about liability issues and wants to setup a separate entity to report rental activity. What would be the best direction? Does he have to transfer ownership of his current properties & purchase new ones under new entity? Any other issues involved? Thanks in advance.
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Welcome to the board
The easiest way to do it with a separate entity for liability protection would be for him to set up an LLC. Under state law, the entity would be considered a separate entity just like a corporation that would give him liability protection. But for federal income tax purposes, the entity would be treated as a disregarded entity. Thus, he would continue to file Schedule E for all his rental activities, as if there was no separate entity. Nothing special would need to be done from a federal tax standpoint, but he would get limited liability protection under state law.
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