Here’s a question we received over at USTaxAid.com.
“My husband owns an S Corp real estate business (he is a real estate broker) and he also owns rental property (which is in his name). We are trying to decide if he should setup his S Corp to manage the rental property so that we receive the rent through the company OR should we continue to receive the rent under his personal name/personal taxes. What are the tax implications of either scenario?”
If you have one rental property, there may not be a real accounting advantage to handling the rental function in a separate business. However, if you have a number of properties, it can be a lot easier to run all of your administrative costs through just one cost center.
For example, let’s say you have 10 properties and you buy a ream of paper for the printer for $8. If you divide it amongst all 10 properties, it would be 80 cents for each. You could drive yourself crazy dividing up the costs for each property.
In this case, using a property management company for just your properties could be a great idea, strictly from the accounting side of it.
You can’t change up the character of the income with this strategy, though. For example, if you have the idea of pushing a lot of income from your properties to the property management company, you’ll be left with a passive loss. If your income is too high, you won’t get a tax advantage unless you are a real estate professional.
So, no tax benefit, but an accounting advantage.
I would not, however, mix up the property management function with a regular real estate business. You could be creating additional liability by adding different businesses together.