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Land Purchase Proposal


artp
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IL taxpayer wants to purchase 30-acre wooded tract of hunting ground which includes a house for personal use for himself and family members. He is not looking to rent it out or develop the property. Purchase price is $325,00 with $70,00 cash down and loan for the balance.  There will be no income from the property, just expenses for real estate taxes, mortgage payments and liability insurance and other personal expenses. Attorney is advising client to form an LLC owned by the taxpayer to purchase the property and hold title in the name of the corporation for liability purposes.

If personal liability is major concern, alternative to corporate ownership? If the property is later sold would this not create corporate tax issue for client? 

Alternative suggestions?

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Is the attorney confusing an LLC with a corp?  An LLC is a Limited Liability Company, not a corp, and limits the individual owner's responsibility but doesn't eliminate it. A corp is a different animal altogether, and if your client ever sells the property it can become a tax nightmare to sell real estate within a corp.  I agree, buy an umbrella policy.

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I need to clarify that the taxpayer is married and an IL resident. If they decide to form an LLC (for limited liability purposes per the attorney) and to purchase and hold title to the property in the LLC should they (or can they) elect to be a single owner-husband and wife- (that is to be disregarded as a separate entity) or should they elect to be classified as a partnership? IL is not a community property state. If the plan is to later transfer ownership (control) to their children how would this effect your response? 

Needing guidance here as I do not have a lot of experience with real estate in an LLC.

Thanks

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Did you read, including links, the responses you've already received? Have you discussed with your client their goals, short- and long-term? Have you discussed with their lawyer?

An MMLLC defaults to a partnership in non-community-property states. If NOT an LLC, husband and wife can have a QJV and file on their joint Form 1040, but that doesn't give them the protection of a separate entity that you say they want/need. They can still get good insurance for any option.

Are they expecting their children to inherit the LLC? Ask the lawyer how that works in IL. (Do they get a step-up in basis or not?) Or, do they want to gift it over time, maybe a % each year?

Ask your clients what their goals are. Then discuss with the lawyer how to achieve those goals.

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Your post says no income, which I assume means they are not in business, therefore no tax returns need to be filed, no EIN.

Husband, wife and all of the children could all be LLC members.  Basically all of the tax related questions are moot.

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