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What’s the best way to hold property for tax purposes?

By ERIC FEICHTHALER - Real Estate Law | Apr 22, 2021

Eric Feichthaler

Dear Mr. Feichthaler:

I have a rental property in Cape Coral – is there a better way to hold the property for tax purposes? That is, hold it as an individual or as an LLC? Thanks in advance.

— Tara C.


Dear Tara:

In most circumstances I see, holding a property in a limited liability company, or LLC, does not result in differing tax treatment than holding it directly. Single Member LLCs, for federal tax purposes, are treated like the individual held it themselves. It is considered a “flow through” entity, and not taxed directly at the entity level.

There could be situations where the LLC would be more beneficial, including if you had another enterprise that had losses, and the income from the rental could be offset by them. However, it should not make a difference in most situations.

Generally, the decision to place rental properties in an LLC will be for asset protection purposes. If properly formed, owners of rental property held by an LLC can insulate their other assets from potential liabilities caused by the rental property.  For instance, if an injury occurred on the property and it was due to your negligence, generally the maximum you could lose would be the equity in the rental house, plus any related accounts. Without the shield of an LLC, some or all of your other assets could be susceptible to a judgment.

I generally advise my clients to make sure they have proper insurance in two forms – hazard and liability insurance on the rental property, and an umbrella policy to cover claims that will exceed the limits of your standard policies. An umbrella policy would not only cover the potential risk on the rental property, but also other aspects of your life, like your vehicles and your own home. 

I strongly encourage anyone who has rental properties to talk to their insurance agent and confirm your coverage will cover any possible claim against you or your family.

Eric P. Feichthaler has lived in Cape Coral for over 33 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.

Mr. Feichthaler can be reached at eric@capecoralattorney.com, or (239) 542-4733.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.