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My girlfriend (a resident alien) and I are looking at properties to purchase, fix up, then resell. Some of the properties are duplexes and I expect to lease the first unit, then sell after the second unit is finished. The idea is the new owner would move into the second unit. Depending on the circumstances, I might keep the building and rent both units.

Not being foolish, I wish to have some liability protection in the form of a corporation since these are rentals. We have no plans on drawing a salary from this corp, so earnings would flow out as dividends. From a tax standpoint, it looks to me like a C corp is a bad idea, while an S corp or LLC, with their flow-through tax treatment, looks pretty good.

From a tax standpoint, it looks to me as if an S corp is the virtually identical to an LLC. Any thoughts as to which one to choose, and why? If there are any tax lawyers lurking, are there legal issues that would prefer one form over the other?
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Most real estate investors use LLC's as their entity of choice to hold their assets. An LLC does everything an S-Corp does (asset protection, flow-through taxation) but offers much more flexibility with respect to structuring options available to the controller of the LLC. For example, it is much easier in an LLC to bring in outside investors or give percentages of profits to other people (children) while still maintaining 100% control of the company.

The only drawback to using an LLC is the fact that they are a relatively new entity and there aren't many precedents (court cases) as to how a lawsuit would be handled should a problem occur. Of course, this is becoming less & less of an issue all the time as LLC's become more & more popular.

I recommend using an LLC for holding investment real estate.
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