Three Reasons to Title Your Investment Property in a Land Trust and Not An LLC

In previous articles, we’ve discussed the main benefits of holding title to real estate investment property in a land trust. A land trust is just like a standard trust, except as the name implies, this type of trust holds title to real estate or real estate related assets.

Real estate notes, deeds and other agreements can be held in a land trust. A land trust can be recorded as either a revocable or irrevocable land trust. The majority of land trust are structured as revocable trusts. However, we’ve also had several inquiries lately about holding title to real estate investment property in an LLC.

While this is an option, based on our own experiences as real estate investors, we know of a few reasons why a land trust is a better title holding vehicle. In this article, we’ll discuss three reasons why you should title your property in a land trust rather than an LLC.

Land Trusts Offer Privacy

One of the main benefits of a land trust is that it offers privacy that you can’t find in an LLC. When you set up a land trust, you’re given the choice to create a name for each trust. This name can be anything, as long as it doesn’t infringe on copyrighted material. In the past, we’ve advised clients to name their trust wisely and in such a way that no personal connections can be drawn from the land trust title and those parties involved in the trust. This creates a layer of protection, since even if someone wants to attack one of your assets, they would have trouble connecting those assets to you. For record keeping purposes, a land trust is documented under its official land trust name. Uncovering ownership details behind a mysterious sounding trust like 321 CWL Land Trust may be more trouble than it’s worth. This is why a vague land trust name can be the secret to preventing lawsuits before they even start.

Land Trusts Can Help You Avoid Losing Everything With A Single Lawsuit

When you put the title to each property you own in its own individual land trust, it separates the liability associated with each. In contrast, if you hold all your property in a single LLC, it not only doesn’t provide anonymity but it also creates a scenario where an attack on one property can lead to an attack on the other properties. This is because all the property is held under the same shared entity. With a land trust, your potential losses are capped at each individual asset. Thus, potential lawsuits are managed, rather than in an LLC where all your hard earned assets are up for grabs.

Land Trust Titles Provide Efficiency

Lastly, a land trust provides efficiency when it comes to financing and selling your property. When each property is held in its own separate land trust, the financing or sale of one property doesn’t impact the other properties, as it may in an LLC holding multiple properties. Our legal team is highly experienced in how to protect and streamline the management of multiple properties. We can help you create a comprehensive asset protection strategy today.

401(K) Loans For Investment Property + Prohibited Transactions

For those who want to save for retirement, a 401(k) account can help. If you are self-employed and do not have employees, you have the option of opening a self-directed 401(k) account. Unlike most company-sponsored accounts, a self-directed 401(k) offers you investment options that go well beyond mutual funds, stocks and bonds.

In fact, your self-directed 401(k) allows you to invest in real estate—as well as precious metals, renewable energy sources, private placements and much more. This means your portfolio can be more diverse, allowing you to take bigger risks but reap much larger rewards. You can save much more at a faster rate for your future. 

IRS Regulations

The Internal Revenue Service (IRS) establishes regulations that govern all kinds of financial realities. The IRS strictly forbids certain types of transaction when it comes to your retirement account. Referred to as "prohibited transactions," these include very specific types of trades and actions the IRS considers “self-dealing.”

Your 401(k) is intended for future use, if you are under 59 ½, taking money from your account is considered an early distribution. This will subject you to regular income tax rates as well as a 10 penalty. However, unbeknownst to many account owners, the IRS does allow you to take a loan from your 401(k). Let's take a closer look

401(K) Loan For Investment Property

A loan from your 401(k) can help you take part in a transaction that the IRS would prohibit. This may sound sneaky, but there are certainly times when such a transaction may be necessary. Regardless of the reason for the loan, however, you should understand how to take one.

The first thing you should do is find out if your plan permits personal loans. Not all financial institutions will allow this. (If you have a self-directed 401(k) with Royal Legal Solutions, you are in luck! We recognize that your account is built from your money and investment choices and respect that. If you need access to a personal loan, we can help.)

If your plan allows for a personal loan, you will then need to apply for one. As the participant, you must apply for the loan; the Trustee will then approve it. (With a self-directed 401(k), you are both the participant and Trustee, so this part is easy.)

You should know that your loan is limited. You can request $50,000 or 50% of your entire account balance. (The IRS dictates that you can take the lower of those two, which means you will not be eligible for a $50,000 loan if your account balance is not $100,000 or more.)

You dictate your repayment plan. With an amortized loan, your repayment schedule must be five years or less. Your repayments must be made regularly. This includes weekly, bi-weekly, monthly or quarterly payments. (You cannot make a single lump sum repayment or semi-annual payments.) Your loan’s interest rate must be consistent with interest rates being applied to other loans.

 

Self Directed Solo 401k: How To Avoid Tax Penalties

Self-administering your retirement plan may sound daunting, but a self-directed solo 401(k) isn’t rocket science. Still, it does require strict compliance with both IRS and DOL regulations. Failure to comply can result in the IRS considering your retirement fund disbursed, penalizing you, and then taxing the disbursements. Be careful—the penalties can be high when you don’t strictly adhere to the guidelines!

The self-directed solo 401(k) can give real estate investors and the self-employed unmeasured flexibility in the types of investments they can hold in their retirement account.

Today, we’re going to focus on one aspect of self-administering a Solo 401(k): the segregation of funds.

Segregating Funds within a Self-Directed Solo 401(k)

Remember, 401(k)s are funded in various ways. There are funds that have been rolled over into the current plan, contributions made by you, and returns on investments, for instance. Suffice it to say, when all these funds are kept as one lump sum, it becomes difficult to show compliance with certain IRS restrictions.

As an example, there may be some instances in which you can hold life insurance in a 401(k). If all the funds are mixed, however, it’s that much more difficult to prove to the IRS that you are in compliance with their regulations. Now you have the IRS hovering over your retirement fund with the threat of penalties and disbursement looming on the horizon.

You also want to segregate pre-tax contributions from other funds within the account because it’s easier to show the IRS where this money went when you claim it at the end of the year. Roth funds, on the other hand, must be specifically designated as such. See also: Solo 401k Contribution Limits: What The Self-Employed Need To Know.

Segregating Funds is Simply Good Practice

Segregating funds helps keep your books more transparent. It may sound like a lot of work, especially when you’re your own trustee, but it works to your benefit and protects you from a possible audit. Being able to account for all funds in your retirement account will keep you in the clear with the IRS and allow you to easily show where all of the money in the account came from.

A self-directed solo 401(k) plan is a great investment vehicle and very versatile in terms of your investment options. But as the trustee, you’re responsible for anything that goes awry with the plan. With the proper planning and bookkeeping, you can ensure that you comply with all IRS regulations.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

401(k) Contribution Limits In 2018

There is no doubt – the Internal Revenue Service (IRS) is the governing body when it comes to your retirement account. For 2018, the IRS did not make any major changes. However, any change, regardless of size, it worth knowing. This is especially true when they affect your contribution limits.

A Quick Note On Retirement Accounts

Before we get into the contribution limits for 2018, we want to make one thing clear. The limits imposed by the IRS on 401(k) plans apply to all types of these accounts. This includes your individual 401(k), self-directed 401(k), self-administered 401(k)s and more.

2018 Contribution Limits for 401(k) Accounts

The contribution limits below apply to both employees and employers. Let us take a look.

Other Types of Retirement Accounts

The IRS also sets limit for other types of accounts as well. Your health savings account, or HSA, is one such example. For individual HSAs, there was a $50 increase, which gives you a new total contribution limit of $3,450. Family HSA plans also increased. With a new limit of $6,900, these accounts have a $150 increase.

For individual retirement accounts (IRAs), however, the IRS has continued with the current contribution limits. These limits, established in 2013, remain at $5,500 for individuals under the age of 50. For individuals over the age of 50, the limit remains at $6,500 as well.

Stay Informed On Contribution Limits For 401(k) Accounts

One of the best ways to stay informed regarding your retirement account is to hire a reputable custodian. At Royal Legal Solutions, we do the homework for you when it comes to IRS regulations. Our professionals have years of experience studying and applying tax laws to help our clients avoid penalties and unnecessary fees. If you would like to learn more about retirement accounts, tax laws, or contribution limits, contact Royal Legal Solutions today!

4 Levels of Asset Protection for Real Estate Investors

Are your kids eyeing that expensive out-of-state college?

Do you want to see a larger return on your individual retirement account (IRA) investments?

Or do you want to quit working your 9-to-5 and start earning a profit on your own?

Whatever the reason, if you are looking to diversify your investment portfolio, real estate is a great start. However, this is a business that can bring you serious legal and financial headaches. That's why asset protection for real estate investors is so important!

Think about it: A simple slip on your property can lead to a court ruling that bankrupts you. A typical judgment will take into account medical damages, pain and suffering compensation, as well as other necessary expenses the injured party faced.

Your overall net worth will also be examined under the microscope.

Below, we take a look at the best ways to protect yourself and your real estate assets from court rulings and expensive judgments.

Understanding Your Current Real Estate Liability

When it comes to investing in real estate, your liability can land you in court. Regardless of the root cause, if you are found to be liable for damages or injuries – a lawsuit will likely follow. This is because, per the legal definition, liability means that you are responsible, or answerable, to the law.

Most lawsuits end with a settlement or judgment. In other words, the majority of lawsuits will result in you having to pay for whatever damages have occurred. When it comes to real estate, most of liability lawsuits result from accidents. (Of course, other lawsuits, such as fraud, do exist as well.)
By definition, accidents are something you typically do not anticipate. Unfortunately, that does not clear you of your liability. However, you can protect yourself and your assets from such lawsuits in several ways. This includes:

To figure out which protective actions you should take, let’s examine each of these individually. After all, every piece is unique and deserves a careful evaluation when you are building a real estate empire.

Is Real Estate Insurance Enough Asset Protection?

Consider insurance to be supplemental to the other ways to protect your assets we'll look at.

Insurance is your first line of defense when it comes to protecting yourself. There are limitations and benefits to the various insurance plans, so make sure you find one that works for you. Basics typically include accidents, like slips and falls. (If the accident is questionable, your insurance company may debate it with you. In most cases, the insurance company wins! So make sure you understand the scope of your policy!)

Typically, insurance providers will refuse to cover several different scenarios. Gross negligence is a big one. If the insurance company believes the accident was caused by something you “should” have known was an issue and did not fix, the fault is yours. Insurances also come with different coverage amounts. The majority of large judgments or claims, for example, will not be covered by the standard insurance plan. Financial disputes between contractors, venders or other such suppliers are not often covered by your insurance either. Oh, and a tenant dispute that involves things like liability, discrimination, rent or evictions? The majority of insurance companies will deny you coverage.

Example: In an ideal world, your insurance will cover damages before a lawsuit is even thought of. For example, a short-term injury caused by a slip and fall has an average settlement of $10,000 to $15,000. While a check for $15,000 seems like a lot, your insurance likely has a much higher ceiling. If this is the case, they will likely pay this amount and the case is closed. However, should a tenant fall from a balcony on your property and suffer serious, long-term injuries, the settlement will likely be much higher. Your insurance company will then investigate the fall, including the railing, regulations, and reason for the fall. If they feel the rail was not properly secured, or it was an inch below new state regulations, they will deem you negligent and refuse to pay the settlement. It will not matter if your tenant was inebriated or sleep walking once your insurance company finds you negligent.

At the end of the day, insurance is a proactive asset protection supplement. It can help mitigate some of the damages financially so long as they fall within your insurance coverage. However, because of the loopholes, it should not be your only means of protection.

Compartmentalization Of Your Real Estate Assets

Compartmentalization means that you separate your real estate assets from risks and liabilities that can cost you money. One of the best ways to do this is to establish a limited liability company (LLC) for each asset. These are called Series LLCs. They provide boundaries between assets and prevent lawsuits or judgments against one LLC from being able to take from another.

To understand how a LLC helps protect your real estate assets, let us first look at the benefits of the LLC itself. If you were to directly invest in a property, you and your personal finances would be subject to any court judgments. That means you could lose your home, car, bank savings, and other investments. In contrast, if you use a LLC to invest in a property, only the assets owned by that LLC would be subjected to any judgments. (In this sense, let us think of a LLC as a barrier wall. Anything outside the wall is considered off limits to the court.) Other advantages of forming an LLC for your real estate investments include less paperwork, less meetings, pass-through taxes, and flexible management and profit distribution.

Example: You’re a conqueror. You see potential in each of your real estate investments. As you invest in each property, you expand your real estate kingdom. Some you purchase in pristine condition. Others, well – they need a bit of work. Buying property is risky business. After all, there are inspections to pass, repairs to be made, and regulations to comply with. To help protect your assets from legal actions, you purchase each with a different Series LLC. Like the battle mounts around a castle, your Series LLC builds a wall around each of your investments. One of your tenants falls from a balcony on Property A (owned by Series LLC A). As the tenant, their lawyer, and court wages war against your kingdom, the walls protecting your other properties are impenetrable. Whatever the lob at the walls around Property B, C and D, you can rest assured nothing will get through. The only course of action they have is to go back to Property A and assess the worth of everything contained within the walls.

Limited liability. That is the magic phrase here. Because you cannot plan for every accident, investing through a LLC helps to limit your overall liability. Forming Series LLCs to isolate each asset from each other further protects your net worth. Why? Because each LLC builds a wall around the assets it owns. If a tenant slips on ice on one property, a Series LLC will ensure the courts can only gauge that specific LLC’s worth when establishing a judgment.

Legal Asset Separation (Use Of Shell Companies)

A shell company is the face of your business. It owns nothing, but legally appears to operate everything. Consider the traditional LLC to be an example of a shell company when it is owned by an Anonymous Trust. (We’ll talk most about these trusts in a moment.) As with a Series LLC, the traditional LLC allows you to keep your personal and business assets separate. This legally obscures your net worth. Additionally, it helps to insulate you from having your personal finances garnished if your business must declare bankruptcy or defaults on a loan.

Example: You’re still a conqueror. However, you build your wall around the entirety of your real estate kingdom this time. After your tenant falls, their legal team rides from village to village, pillaging your assets and reaping the benefits of your total real estate worth. If you have one property, however, they remain contained within a smaller area, unable to touch your personal assets outside of the wall.

If you only plan on investing in a single asset, the traditional LLC provides ample asset protection. It offers the same advantages of a Series LLC, however it provides you with only one barrier that contains all of your investment assets. This means, if an incident on one of your properties lands you in court, all of your business assets may be in trouble.

Assets Shielded By Anonymity

Anonymity is another layer of protection that can help you sleep better at night. To achieve true anonymity, we often advise clients to establish an Anonymous Trust before creating any type of LLC. Why?

An Anonymous Trust, also called a Land Trust, is made up of three parts. These are the grantor, trustee and beneficiary.

When you decide to establish an Anonymous Trust with my company (Royal Legal), we become your designated “nominee trustee” and file the required paperwork for you, thus eliminating your name from the records. Once filed, we resign as the trustee and you become the designated sole trustee.

This means that your name is never filed with the clerk. This makes it incredibly hard for lawyers to connect your Trust to the LLC, and thus, to the property.

Because your Anonymous Trust can then create a traditional or Series LLC, your name continues to be obscured. (An LLC will need to disclose the names of its members when it files its Articles of Incorporation with the state clerk. However, when an Anonymous Trust owns the LLC, only the name of the trust is listed in this document.) By adding this important layer to your asset protection plan, you can shut a lawsuit down before it is even filed.

Example: An anonymous conqueror makes the most of their kingdom. After all, who can the tenant and their legal party attack when they cannot figure out who is running the show? However, you decide to operate your kingdom, whether through a single wall or many, your crown sits securely in your safe, where no one knows to look.

Layer Your Assets With Protection

In 2001, DreamWorks’ Shrek told us, “There’s a lot more to ogres than people think. Ogres are like onions…Onions have layers. Ogres have layers.” As a real estate investor, you should too. We recommend a three-layer approach to real estate investing.

The problem with using only one level of protection with real estate investing is because of the dynamic nature of real estate itself. After all, most real estate lawsuits stem from accidents. Because you cannot plan for every potential accident, having layers ensures you remain protected no matter what happens. From lawsuit prevention, like acquiring insurance, to creating a legal obstacle course, like an Anonymous Trust, to help discourage lawyers from picking up a case – layers help stop a lawsuit before it starts. However, should a lawsuit actually occur, establishing boundaries through a traditional or Series LLC can help to minimize any judgments and protect your personal and business assets.

Have Confidence in Your Real Estate Asset Protection Plan

We want your real estate investments to be successful. To do this, you have to look at the bigger picture. This includes figuring out the best way to protect your real estate investments, your personal assets, and your name. Through years of experience helping our clients avoid lawsuits, our three-layer approach to asset protection has proven itself to be invaluable. Best yet, our experts streamline the process to ensure everything flows smoothly. We can help you set up an Anonymous Trust and establish your desired LLC structure. Alternatively, if you already have an LLC, we can assist you with rolling over your direct ownership to an Anonymous Trust to give you another layer of protection. If you would like to learn more about how we can help you keep your real estate assets protected, contact us today.

'Life Cycle' of a Retirement Plan: Setting Up a Solo 401(k)—And When To Shut It Down

When we talk about 401(k) plans having a life cycle, we mean that as literally as it can be meant. They are born, they exist, and then they’re terminated. It’s a useful analogy because it draws attention to the distinct stages of a 401(k) and creates a blueprint for managing it.

What is a Solo 401(k)?

Solo 401(k)s are the same as any kind of 401(k) but they’re for those who run their own business as sole proprietors. Typically, an employer would set up a 401(k) for you, but as a sole proprietor, you are the employer. You have to do it yourself. It may sound daunting, but it’s not as hard as you might imagine.

The Birth of the Solo 401(k) (How To Set It Up)

Let’s face facts. The economy is changing. Salaried careers still exist, but more and more folks are proprietors in the gig economy. That means they run a business out of their own homes or use their own capital and property to support themselves.

If that describes you, and you’re looking for options to save for your retirement, you should know that the 401(k) allows you to save more money than other kinds of retirement vehicles. As the “parent” of the plan, you must sign an Adoption Agreement. In order to do that, you must have an EIN (Employer Identification Number).

Setting up a solo 401(k) isn’t difficult, but there are quite a few forms to fill out. The second form identifies a Designation of Successor Plan or Administrator and requires a notary or a witness.

For individuals you will also need to fill out:

After all this, your solo 401(k) has been born!

The Operation or Execution (the Life) of Your Solo 401(k) Plan

First, you’ll need a place for it to live. Many people erroneously believe that the only place you can “house” a 401(k) is at a bank. That’s not true and it may not even be close to the best option available to you.

You’ll also need to nourish your solo 401(k). Remember that you can roll over funds from previously established 401(k)s or even IRAs.

You also don’t want to raise a delinquent child, so you will need to ensure that your 401(k) complies with IRS regulations. That includes reinvesting the money that your plan generations and being aware of which transactions are prohibited.

Death or Terminating Your Solo 401(k)

This is where we hope the parent/child analogy falls a bit short. The plan will terminate after the sole proprietor shuts down the plan and begins taking disbursements.

While the process can be managed on your own, it helps to have a financial professional on your side who can help ensure you remain in compliance with IRS regulations.

401K Plan Loans — Why 72(p) Can Assist Your Investments

People often wonder if they can borrow money from their 401(k) plans. The answer is yes, but there are a number of things to bear in mind when you do.

Firstly, the money that was paid into your 401(k) is your money, but it was allowed to accrue interest tax-free. In addition, money that you paid into the fund was tax-deductible. In order to enjoy that tax-deferred or tax-free status, you have to comply with specific IRS regulations.

When you take out a car loan, what happens when you don’t pay it back? They come and they repossess the car, of course.

Now, what happens if you default on a loan from your 401(k)?

The IRS will consider the 401(k) “distributed”. That means they assume you cashed out your account. Not only is the entire fund now voided, but you face a 10% penalty for cashing out early. You may also be forced to pay an additional capital gains tax.

Guidelines for Executing a Loan with Your 401(k)

401(k)s are not like savings accounts where you simply withdraw money and pay it back whenever. You must draw up a legally executable contract and that contract must follow IRS guidelines. The repayment plan must also conform to IRS guidelines. In other words, it’s risky to borrow against your 401(k), but it can be done, and safely.

401(k) Loan Limits

No loan taken from a 401(k) is allowed to exceed either $50,000 or half the vested balance, whichever is lower.

401(k) Loan Repayment Limits

The loan must be repaid over a period of no more than 5 years. Exceptions are made for loans used to purchase homes.

401(k) Loan Repayments and Interest

You can’t just float yourself an interest-free loan. The loan must be repaid on (at least) a quarterly basis with a legitimate interest rate attached to it. The loan must be 1% over prime and there must be an agreed upon amortization schedule.

Section 72(p) regulations are not meant to hurt you. They’re meant to help you. When you borrow against your 401(k) you are using tax-exempt monies that the IRS and the government have allowed you to set aside for your retirement. If you could just take money out of the fund then that would defeat the entire purpose of it.

Logistically, you’re borrowing the money from yourself and then paying it back with interest. Technically, however, you are borrowing money from a fund that enjoys tax-free or tax-deferred status. There are conditions for enjoying those exemptions.

Our recommendation is to tread lightly and know what you’re getting into before executing the loan. If necessary, have someone help you with the process.

Are Legal Expenses Tax Deductible for Real Estate Investors?

When it comes to legal expenses, what can and cannot be claimed as a tax deduction can be confusing. In fact, the answer really depends on the nature of the legal expense itself. Whether you’ve formed a series Limited Liability Company (LLC) or are using your self-directed 401(k) to make real estate investments, Royal Legal Solutions is here to help.

The Rules

The Internal Revenue Code (IRC) is the governing set of laws created to define what can and cannot be taxed. It is written by our US Congress and approved by the President. The IRC dictates that, with few exceptions, that you cannot deduct personal, living or family expenses on your income tax returns. (Itemized deductions are one of the exceptions.) The IRC does, however, allow the individual to deduct certain ordinary and necessary expenses that are paid throughout the tax year. These include:

Legal Interpretations of These Rules

How the Internal Revenue Service (IRS) views the laws established in the IRC can often seem convoluted. However, case laws have helped to demonstrate the legal interpretation of these rules. While there are other ways in which these rules can be applied, below are a few that are best related to the real estate investor’s interest.

Expert Services

The professionals at Royal Legal Solutions understand how complicated tax laws can be. As part of our expert services, we can help to prepare any tax filings related to your business or investments. If you would like to learn more about how Royal Legal Solutions can help, take our Tax Discovery Quiz.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

IRS Form 5500-EZ: Needed To Terminate Solo 401(k) Retirement Account?

If you have a  self-directed, or solo 401(k)—or what the IRS calls a one-participant 401(k)—you already know the taxman requires you to report accounts with more than $250,000 in annual assets. This is done through the IRS form 5500-EZ.

If you are terminating a self-directed 401(k), whether it is associated with you as a sole-proprietor or through an entity you own, you also need to file a 5500-EZ form. In fact, once you close your account, the IRS gives you seven months to file. How does this work?

Step 1: Terminating Your Solo 401(k) Retirement Account

As the Trustee of your account, you are responsible for a great amount of the work related to terminating your plan. Transferring your funds to another retirement account, for example, is not the only part of a plan’s termination.

In order for you to be compliant with the IRS regulations, you will need to contact your plan document sponsor.  In turn, the sponsor will provide you with the necessary forms required for you to terminate your account.

Step 2: Filing with the IRS

Once you have completed the forms provided to you by your plan document sponsor, you will need to file the 5500-EZ Form with the IRS. This form, which can be downloaded from the IRS website, is relatively simple. However, hiring a reputable professional may be a good idea. Contact us if you need a referral or if you have other questions!

Land Trusts and the Garn-St. Germain Depository Institutions Act of 1982

As real estate investors ourselves, we understand how difficult it can be to keep up with all the compex legislation surrounding real estate. Today, we’ll discuss a piece of legislation that can seem intimidating at first, but is actually straight forward in its application.

The Garn-St. Germain Depository Institutions Act (Garn-St. Germain Act) was enacted October 15, 1982. The act, which was an initiative of the Reagan administration, enjoyed vast support and passed 272–91 in the House. Below is a quick guide on the connection between the Garn-St. Germain Depository Institutions Act of 1982 and land trusts, as well as how this act can impact your bottom line.

Avoiding the Due on Sale Clause with a Land Trust

The purpose of the Garn-St. Germain Depository Institutions Act is: "to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans." In pursuit of this, the act allows individuals to place their personal property in a land trust without triggering a due on sale clause.

A key exception found in the act that some use as a basis for avoiding the due on sale clause states: “A lender may not exercise its option pursuant to a due-on-sale clause upon a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.” (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)). Thus, the Garn-St. Germain Depository Institutions Act freed individuals to put their property in a land trust for estate planning and anonymous property ownership without fear of lenders calling their loan due.

Why You Shouldn’t Worry About the Due on Sale Clause

Banks rarely apply the due on sale clause if payments are being made regularly on a property. Banks profit of mortgage payments, thus if an individual is making timely payments, enacting the due on sale clause and possibly foreclosing on a property doesn’t make business sense. However, we don’t recommend relying on the individual business decisions of each bank. A more proactive approach would be to hold title to your property in a land trust, which provides anonymity, a savings on transfer taxes and potential avoidance of the due on sale clause. Our expert legal team can answer any questions you have regarding transferring property and establishing an asset protection strategy.

Unpaid Debt Can Take Your Tax Refund as a Real Estate Investor

At Royal Legal Solutions, taxes are always on our minds. We know what you are thinking. Tax season is months away! However, now is the time to start paying down any unpaid debt you may have. Why? Because certain types of debt will garnish your tax refund check before you even lay your hands on it.

How is this possible?

The Bureau of the Fiscal Service (BFS) is the Treasury Department branch that issues your federal tax refund checks. However, through the Treasury Offset Program (TOP), Congress has authorized the BFS to reduce your refund check in certain cases. In fact, the BFS can reduce or even take all of your refund and apply it to your unpaid debt.

Types of Unpaid Debt

Not all debt will result in the reduction of your tax refund. If you own on your mortgage, for example, your tax refund will not be affected. However, debt related to the below categories can result in a reduction.

What Happens

Being proactive now can help decrease the amount of debt owed, which can then prevent or reduce the likelihood of losing your tax refund. First, you should contact the BFS TOP call center. You can contact them at 800-304-3107 or TDD 866-297-0517 to inquire about whether your debt falls into any of the categories above.

If you fail to pay any debt that will be subjected to TOP, the BFS will likely reduce or take all of your tax refund in order to pay off the amount owed. If there is a balance after TOP garnishes your owed debt amount, the remainder will be issued to you as a check or through direct-deposit.

Furthermore, if the BFS reduces your tax refund, you will receive a notice with the amount and the agency that filed the claim. You can contest this amount by contacting the agency that filed for the offset.

What if Spouses Files Together?

If you file a joint tax return with your spouse, but they are solely responsible for debt, you may still be entitled to part or all of your refund. To do this, you will need to file Form 8379, also known as the Injured Spouse Allocation.

Speak With a Professional Today

If you are worried about the upcoming tax season, you should contact a professional today. For those who invest in real estate, which provides plenty of financial growth potential, figuring out your tax standing now can help you avoid losing your tax returns. At Royal Legal Solutions, our professionals are here to ensure you get the most you possibly can out of a tax return. Not only can we help save your taxes, our experts are able to better help you protect your assets. To find out more, please take our tax quiz to schedule a consultation with us today!

Avoid IRA Early Withdrawal Penalty With Substantially Equal Periodic Payments (SEPP)

In a perfect world, when you open an individual retirement account (IRA), you won't make withdrawals before the age of 59 ½.

However, life does not always go according to plan.

Sh*t happens.

In most cases, if you withdraw funds from your IRA before the age of 59 ½, the Internal Revenue Service will consider it an early distribution. That means your funds are subjected to regular income taxes as well as an additional 10% penalty.

However, this is not true in all cases.

You down with SEPP?? (Yeah you know me) ...

Substantially Equal Periodic Payments (SEPP)

If you are facing a short-term financial crisis, an early IRA withdrawal should not be your first course of action. However, if you are considering using your retirement account, the substantially equal periodic payment (SEPP) gives you the chance to take an early distribution without having to pay hefty taxes.

But you have to make sure you understand the SEPP rules.

Understanding Rule 72(t)

Rule 72(t) refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as SEPP regulations are met.

To take advantage of this rule, you must take at least five substantially equal periodic payments (SEPPs), and the amount of the payments depend on the your life expectancy (calculated by IRS-approved methods). These payments must thus occur over the span of five years or until the owner reaches 59½—whichever period is longer.

There are some things to know before you opt for using the SEPP method for an early IRA distribution. These include:

IRS-Approved SEPP Calculations

The IRS has three approved ways of calculating your SEPP amounts. All three can result in varying payments. By offering these various calculation methods, the IRS allows you to pick the repayment plan that works best for you. These options include Amortization, Annuitization, and Required Minimum Distribution (RMD) methods.

Reach out if you want to know more. We can answer your questions!

Are Charity Auction Purchases Deductible Contributions for Real Estate Investors?

Charities often hold auctions as a way to gain valuable contributions that help better their cause. If you are a real estate investor, you may wonder whether your auction purchase at one of these charity events can be considered a deductible contribution. Below, Royal Legal Solutions helps clarify how charity donations work on your tax returns.

Charity Auction Purchases

According to the Internal Revenue Service (IRS), some, but likely not all, of the money you paid for an item at a charity auction is considered deductible.

As stated above, the IRS only considers a portion of your auction purchase to be a deductible contribution. Some charities will provide a catalog of items prior to the start of the auction. In this book, you may find a “good faith” estimate on each item’s estimated worth. Assuming you have no reason to doubt the validity of these estimates, this catalogue is an important piece of evidence. Why? The IRS will only consider the portion of your purchase that goes above “fair market value”. However, you need to demonstrate that you knew the value before you paid for the object. Having a catalogue that provides this is a quick and easy way to prove this.

If a property is listed for auction, a proactive sale will include the estimated fair market value. This will include an examination of how developed the property is, as well as its current state. Purchasing this property for $10,000 more than the estimated fair market value means you could potentially claim that additional money as a deductible contribution to a charity.

Providing Assets to a Charity

Another question we often get is regarding charitable donations. Unfortunately, the IRS limits the amount you can claim as a deduction. Unlike purchasing an item, you cannot claim fair market value for items you donate. Instead, you can only claim an amount relative to your tax basis.

When In Doubt, Ask a Professional

At Royal Legal Solutions, we can help you address any tax questions you may have. As a real estate investor, retirement plan owner, or business entity – our professionals understand how the tax laws affect your returns. If you have questions regarding charity contributions, whether through purchase or donation, the experts at Royal Legal Solutions can help you get the most out of your tax filing. If you would like to schedule a consultation with one of our professionals, contact us today!

When a CPA Says The IRS Prohibits A Solo 401K From Investing in Real Estate

A lot of old school CPAs still believe that you can’t use retirement vehicles like 401(k)s or IRAs to invest in real estate. They say this despite the fact that thousands of people all over the country are using retirement vehicles to do just that.

And why not? Real estate is an excellent investment right now. We’re not talking about derivatives or investing in financing, we’re talking about the real estate itself. Real estate has always been a smart investment because the value of real estate moves in the opposite direction currency does.

In other words, as the value of currency goes down due to inflation or other economic factors, the value of real estate goes up. Real estate isn’t the only investment that is true of, but the market for real estate is booming everywhere right now and that doesn’t appear to be changing because it’s not due to anything more than supply and demand. There are more folks entering the housing market now, and their options are increasingly limited due to the fact that inventory is low.

Why Some CPAs are Leery about Using Retirement Vehicles to Invest in Real Estate

Traditionally, IRAs and 401(k)s, even when they are of the self-directed variety, have been used to invest in stocks, bonds, and mutual funds. Real estate is a separate kind of investment entirely, and CPAs are justifiably cautious when it comes to using a Solo 401(k) to invest in real estate.

But the same rules that apply to any investment in your Solo 401(k) also apply to real estate. That is to say, you cannot directly benefit from property in any way. You cannot reside on the property. No one in your family can reside on the property. Any monies received from the investment must be paid directly to the retirement account, and finally, you cannot manage the property yourself. You’ll need a property manager.

With that in mind, you can (in fact) hold real estate in a retirement account. Regardless of how suspicious a CPA might be of doing so, it’s perfectly legal.

On the other hand, not every trustee out there is going to offer their customers the option of using their retirement account to invest in real estate. That may, actually, take a bit of digging. You’ll need to find a trustee who is not only capable but also willing to establish and manage an account that allows you, as the account owner, to invest in “non-traditional” assets like real estate.

But once you’ve found them, you’ve tapped into one of the most lucrative markets in today’s economy. So it’s well worth the effort.

Getting The Most Out of Employee Business Deductions

As an individual taxpayer, the Internal Revenue Service (IRS) allows you to make certain deductions. For example, you can make miscellaneous itemized deductions in relation to expenses incurred during your employment.

For the most part, taxpayers should only claim these deductions if they were not reimbursed by their employer for these expenses. Additionally, these expenses must be considered ordinary and necessary in order for you to do your job. They cannot include personal expenses.

Deduction Barriers

While the IRS does allow for you to deduct these items, they also have established two barriers that reduce your overall deduction value.

The first barrier, also known as the 2%-of-income, or AGI, tax is the most likely to affect Tier II miscellaneous deductions. (Tier II miscellaneous deductions include, but are not limited to, those related to employee business, investment, some legal and home office expenses.) The 2% AGI barrier totals up all of the miscellaneous deductions and reduces the value by 2% of the taxpayer’s AGI for that year.

The second barrier, AMT, will make all Tier II expenses non-deductible. However, Royal Legal Solutions can help you plan your deductible approach this tax year. Below, we list several strategies that can help you get the most out of your deductions.

Employee Business Deductions Strategies

Overcoming the IRS barriers is easier if you have a set strategy. Let’s take a look.

 

Preventing Tax Problems When Partners Travel

As a business entity, tax laws can be rather confusing. While some of the tax codes, as established by the Internal Revenue Service (IRS), are straight forward, others can be complex. The professionals at Royal Legal Solutions understand how stressful filing taxes can be. We are here to help. When it comes to partner and employee travel, below are a few things that can help you get the most out of your business travel expenses.

Rules to Know

As an employer, the IRS has several rules you should know. However, we will focus on two of the most significant ones.

Following the Rules Earns You More

When you follow the rules dictated by the IRS, the cost of travel is almost entirely deductible. Meals, for example, are only 50% deductible. The tax-free reimbursement paid to your employee or partner is also not tax deductible. (However, the reimbursement is also not subjected to payroll withholdings or FICA.) If you do not follow the rules, however, everything is still deductible by you as the employer. The reimbursement, though, will need to be added on the employee’s taxable wages instead. This will cause the reimbursement to be subjected to both payroll withholdings and FICA. (The working condition fringe benefit rules dictate that items that are deducted from the employers taxes are not to be included as part of the employee’s salary.)

How It Works

As the employer, you are able to deduct business expenses that are considered to be ordinary and necessary. This includes job-related travel and lodging expenses. (Although, you should note, these accommodations cannot be extravagant or lavish!) An “accountable plan”, which requires the employee or partner to provide justification and adequate proof of all expenses during a job-related travel event, allows an employer to properly deduct these expenses. This means receipts must be supplied to the employer.

When You Don’t Follow the Rules

Everyone loses when you do not follow the rules. When reimbursements are made from the employer to the employee without an accountable plan, they are taxable. To deduct these items, the employee will need to file a miscellaneous itemized deduction (Form 1040). These deductions will need to be made under Schedule A on the form and will be subjected to a 2% AGI nondeductible threshold. As a result, some or all of the expense will not be able to be deducted by the employee. If the employee needs to file deductions for lodging and meals, they must be required by their job to be away from home for at least one night per the away-from-home rule. However, this is only true if the stay is for less than one year. Anything over than that will likely be unable to be deducted.

Royal Legal Solutions and You

At Royal Legal Solutions, our professionals can help you understand the IRS process as it relates to your business. We can help ensure you get the most out of your taxes. If you would like to schedule a consultation, please contact us today!

The Self-Directed IRA Plan Asset Rules

When you open an individual retirement account (IRA), you do so as a way of saving for your golden years. An IRA allows you to invest in mutual funds, stocks and bonds. However, a self-directed IRA, also known as a SDIRA, permits much more.

With your SDIRA, you can invest in real estate, private placements, precious metals and more. In fact, with a SDIRA, you can invest in almost anything. However, there are some rules. The Department of Labor (DOL) established the Plan Asset Rules as a way to define what is considered an IRA asset. By understanding this rule, you can avoid participating in a prohibited transaction.

Plan Asset Rules

The Plan Asset Rules are also referred to as “Look-Through” Rules. Two main things can trigger the Plan Asset Rules. These are:

Exceptions to the Plan Asset Rules

There are certain exceptions to the DOL Plan Asset Rules. We noted the rules as they apply to an operating company—a partnership or limited liability company (LLC) that typically engages in the development of real estate as well as venture capital or companies that provide various goods and services. When it comes to an operating company, if the plan does not own 100% of the partnership or LLC, then the DOL rules do not apply.

However, you should still review and understand prohibited transactions as defined by the IRS. These transactions can cause the IRS to treat your actions as an early distribution. This will result in penalties! The Plan Asset Rules will also not apply if the operating company, or the interests of the partnership or membership, are publicly offered. The same is true if the interests are registered under the Investment Company Act of 1940.

Impact and Consequences

In reality, many of your investments will not trigger the DOL’s Plan Asset Rules. Direct purchases of real estate, precious metals and many other types of transactions performed on behalf of your plan will not trip the Plan Asset Rules. In fact, even if it otherwise would, as long as a disqualified person does not participate in the transaction, you will not trigger these rules.

Violating the DOL’s Plan Asset Rules does come with consequences. However, when you establish a SDIRA with a reputable law firm, avoiding these consequences is easy.

A Few Exceptions to the Early IRA Withdrawal Penalty.

An individual retirement account (IRA) is set up to assist you with saving money for your golden years. The Internal Revenue Service (IRS) permits you to begin making withdrawals from your account at the age of 59 and ½. Nevertheless, you can take withdrawals prior to this if you are willing to pay a penalty. For early distributions, the IRS makes you pay a 10% penalty fee. Depending on the amount you are withdrawing, this can be a hefty penalty. However, you are exempt from this in some instances.

IRS-Approved Exceptions

In order to withdraw from your IRA free of a penalty, you must meet one of the below exceptions.

For some of these exceptions, certain qualifications or rules will apply. For example, when you purchase your first home using money from your IRA, there is a lifetime distribution limit of $10,000. The funds must also be used within 120 days after you have withdrawn them. Additionally, the funds must only be used on the first home and the buyer is the IRA account owner, their spouse or an ancestor.

Royal Legal Solutions

If you hold an account with a reputable firm, like Royal Legal Solutions, you have already made your first great investment choice. By allowing us to help you with your IRA, you can take advantage of any of our great services. Our professionals want the best for you and your account. We understand IRS, state and federal regulations that may apply to your account. By using Royal Legal Solutions to start your retirement account, you can feel secure in knowing we will help keep you from violating these regulations. Contact us today to find out more about the services Royal Legal Solutions provides.

Calculating Tax on UDFI from IRA Investments

Your individual retirement account (IRA) is typically considered to be tax-exempt. However, when your IRA borrows money in a non-recourse loan, the owner must file the Internal Revenue Service (IRS) Form 990-T and a Schedule E. They also must report the income generated by the loan as it may be subject to taxes.

Filling Out the Form

Unrelated Debt Financed Income (UDFI) is generated when an IRA borrows money to purchase real estate. UDFI also requires the account holder to file Form 990-T with the IRS, similarly to UBIT.

You will find eight columns under Section E of IRS Form 990-T. These are as follows:

Column 1.   During the year, if there was an outstanding loan on the property owned by the IRA, that property would be considered debt financed. This is true even if the property is sold at a gain before the end of the taxable year.
Column 2.   Income cannot be taxed twice. If your IRA generated an income via a business investment through the use of a limited liability company (LLC), this income cannot be taxed again.
Column 3.   These are your deductions.
Column 4.   The average acquisition indebtedness can be tricky to calculate. Start with figuring out which months your IRA owned the property during the year. Once you do this, figure out the outstanding principal debt on the first of each of those months. Add them together then divide that sum by the number of months.
Column 5.   Section 1011 of the IRS Code can help to explain how to find the adjusted basis for the debt financed property owned by your IRA. Once you determine this value, you would need to adjust it for the depreciation of the previous tax years.
Column 6.   To find the value of column 6, simply divide column 4 by column 5.
Column 7.   Calculating the amount of income generated by your debt-financed property can be confusing. First, divide the property’s average acquisition indebtedness for the tax year by the property’s average adjusted basis. Once you have this number, multiply it by the property’s gross income. (This percentage cannot exceed 100%.)
Column 8.   Sum up your total deductions from column 3. Multiply this by your response to column 6.

Unrelated Business Taxable Income (UBTI) Tax Rate

Your self-directed IRA (SDIRA) is subject to the IRS UBTI tax rates. Why? Because the IRS treats your SDIRA as a trust. For 2020, these rates are:

We Can Help

When you have an account with Royal Legal Solutions, you can rest assured that your IRS forms are filed correctly. Not only do we help you understand the regulations and requirements of the IRS, but we will handle the paperwork for you. After all, these forms can be tricky and sometimes complicated. Let us help. Contact the professionals at Royal Legal Solutions today to find out more about what we can do to make your IRA ownership easier.
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How to Use a Self-Directed Roth IRA to Invest in Options

Your individual retirement account (IRA) is a great way to save for your future. A traditional IRA uses pre-tax dollars to invest in mutual funds, bonds and stocks. A Roth IRA, however, uses post-tax dollars to do this. With an IRA, you have limited choices you can invest in. However, with a self-directed IRA, also known as a SDIRA, you have much more potential investment opportunities you can make. This is true of both the traditional and Roth SDIRA.

The IRS and Your Retirement

The Internal Revenue Service (IRS) provides rules and regulations that govern how your money is taxed. This includes you income and your retirement accounts. In general, however, the IRS does not dictate what you can invest in. It only outlines the things you cannot invest in. (Check out the Internal Revenue Code (IRC) Section 408 to find out more about what the IRS does not allow you to invest in.) The IRS also establishes “prohibited transactions” and “taxable incomes.”

Prohibited Transactions

IRC Section 4975 defines “disqualified persons” and “prohibited transactions” as well as the penalties that you will face for participating in them. Prohibited transactions are typically those that occur between your IRA or an IRA owned entity and a disqualified person.

Unrelated Business Taxable Income (UBTI)

The IRS defines the UBTI through IRC Sections 512 to 514. In general, most IRA investors have found a loophole in the UBTI. When your IRA funds are used to invest in publically traded stocks, for example, IRC 512(b) allows any gains to be exempt from the UBTI.

Investing In Options

As with other types of IRAs, you can establish a limited liability company (LLC) with your self-directed Roth IRA. Using this LLC, you can invest in a contract vehicle that allows the buyer to buy or sell any asset at a specified price by a certain date. These contract vehicles are known as “options”. Like a stock, an option is considered to be a security. However, it is also a binding contract, complete with terms and properties. If you use your self-directed Roth IRA LLC to invest in options, you are in luck. The IRS excludes most of these transactions from the UBTI.

IRA Business Trust

Finding the right retirement account can be confusing. There are many different types of accounts you can pick from. Consulting with a reputable firm, like Royal Legal Solutions, can help you. A self-directed Roth IRA is a great way to diversify your investment portfolio. Best yet, because you used post-tax dollars to fund this type of account, your gains and interests are tax-free! If you would like to find out more about retirement accounts, contact us today.

Beneficiary Options for an Inherited IRA

When you open an individual retirement account, also known as an IRA, it is supposed to help you save for your golden years. After all, an IRA gives you the opportunity to grow your savings until you retire or reach the age of 59 ½. However, in some cases, the funds in your IRA may outlast you. When an IRA owner passes before all of the funds have been depleted, the remaining balance is passed to their designated account beneficiary. Should this happen, the beneficiary has a few options they should consider.

Open an Inherited IRA

The first option is an inherited IRA. This account will allow you to distribute the funds, although they will be taxed. (Withdrawals from an inherited IRA account are subject to your normal income tax rate.) When you open an inherited IRA account, you will have a required minimum of withdrawals you must make. The balance of the inherited IRA account and your life expectancy determines this. If the original IRA owner passed before the age of 70 ½, you may delay withdrawals for up to five years.

Take a Lump Sum

If you would prefer to cash out the IRA account you inherited, you have that option as well. As with the inherited IRA account, a lump sum withdrawal will be taxed like your normal income would be. If the IRA has a large balance, it is important to realize that this may push you into a new tax bracket. With it will come higher tax rates.

Transfer the IRA

In the event that you inherit an IRA from your spouse, you have the option to transfer the balance into your own account. This is known as “assuming ownership.” Unlike the inherited IRA account, you are able to make withdrawals when you deem it necessary. As with a normal IRA, there are penalties if you withdraw funds prior to turning 59 ½. (Penalties are currently 10% for early withdrawals.)

Roth IRA

The above options apply to traditional IRAs and Roth IRAs. There is one obvious difference however. Roth IRAs are opened with post-tax dollars. Because of this, they are typically not taxed. If you opt to take withdrawals from an IRA you inherited and are over the age of 59 ½, you can do so without owing any taxes. However, if you are under the age of 59 ½, you will need to pay an early penalty tax on any investment gains you withdrawal.

Royal Legal Solutions and Your Beneficiary

At Royal Legal Solutions, we make IRA account ownership easy. When you open an account with us, we strive to make it as painless as possible for you and your designated beneficiary. We understand the impact the loss of a loved one can have. Because of this, we do our best to provide your beneficiary with the same support, professional feedback, and quality account policies that we gave to you.

How Full-Time Real Estate Investors Save Thousands in Taxes by Electing to be Treated as a Real Estate Professional

The tax code can be a wonderful thing for real estate investors, especially for those who invest full-time. This is because there is a special rule that can save taxpayers, active in a real estate trade or business, thousands of dollars in taxes.

Why is The Real Estate Professional Status so Important?

As you may already know, rental real estate often creates a loss for tax purposes due to depreciation. And while most investors are limited in the amount of passive losses they can deduct from their ordinary income, real estate professionals can deduct passive losses against their ordinary income without limits.
If you are not a real estate professional, you can deduct up to $25,000 of passive losses against your ordinary income if your AGI is $100,000 or less. This phases out $1 for every $2 of earnings until your AGI hits $150,000, then the deduction is completely eliminated.

Example:

If you made $95,000 in active income (i.e. your job) and had $50,000 in passive losses from real estate you could reduce your taxable income from $95,000 to $70,000, and assuming you’re in the 24% tax bracket, that’s $6,000 in tax savings.
The remaining $25,000 would be suspended until it can be used in future years, and if your income was $150,000+, you would receive no deduction.
However, if you are considered a real estate professional, you could deduct the entire $50,000, saving another $6,000 in taxes.

Who is Considered a Real Estate Professional?

Being a real estate broker, agent, or simply working in a real estate trade or business does not make you a real estate professional for tax purposes.
A real estate professional, for tax purposes, is a person who works at least 750 hours, and more than half their annual working hours in that real estate trade or business. For this reason most individuals with full-time jobs do not qualify for this status.
However, employees who work in a real estate trade or business can use their working hours towards this requirement if they own at least 5% of the company.
For the losses from real estate activities to be deductible against ordinary income, the real estate professional must materially participate in each activity. Therefore limited partnership interests may be excluded.
Married couples can elect this status, if one spouse can meet these requirements. This typically works well when one spouse cannot elect this status being they work a full-time job, and the other doesn’t

Example:

You are a full-time real estate investor and spend 1,000 per year on your real estate business, and you are also a part-time blogger and spend 250 hours in your web business.
Because you spend over 750 hours, and more than half their annual working hours in that real estate trade or business you can elect to be taxed as real estate professional.

The Bottom Line

Qualifying as a real estate professional can save you thousands of dollars in taxes if you invest in rental real estate. However, due to the complexities in qualifying, you will want to consult a tax professional before planning to use, or electing this status.

Author: Thomas Castelli, CPA is a Tax Strategist and member of The Real Estate CPA, an accounting firm that helps real estate investors keep more of their hard earned dollars in their pockets, and out of the government's, by using creative tax strategies and planning.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

Why You Need A Registered Agent Service

Did you know that as a business owner, you are legally required to have a Registered Agent in the state that your real estate company is formed in? This is particularly true if you have set up an LLC or Series LLC outside of your state of residence. There are many good reasons why investors choose to set up their companies in a location they don't live in. Some states offer favorable tax treatment, including a lack of a state income tax, while others offer legal and operational benefits to owners of corporate structures. It is not unusual at all for an investor living in, say, North Carolina, to have their investment properties secured in a Nevada or Delaware Series LLC. There are a number of financial, legal, and practical reasons to structure a company outside of your state of residence. There is nothing wrong with this practice. In fact, we often recommend it for asset protection purposes - check out our free educational resource on the best states for forming a Series LLC for even more details. But real estate investors who do this must have a Registered Agent in the state where their business operations are based.

What Exactly Does A Registered Agent Do?

The Registered Agent serves a clear role that is critical to the legal standing of your real estate investment business. This is the person who will function as your legal point of contact for all of your business matters in your company's state. He or she will be responsible for receiving business documents and keeping up with all legal correspondence. To learn more, check out our previous educational article on the role of the Registered Agent.

Who Can Serve As My Registered Agent?

Fortunately, you have options when it comes to satisfying the Registered Agent requirement. These are some of your most common options:

Using an attorney has some obvious advantages over a professional Registered Agent. First, someone who is simply a Registered Agent may not have much experience in matters of law. These individuals also cannot assist you with other aspects of company formation. An experienced real estate attorney, on the other hand, will be able to help ensure your compliance across the board - not just with the Registered Agent requirement. Further, a qualified attorney will also keep track of changes in law and corporate regulations. Because the law is always evolving, it's best to have someone with the knowledge and research skills to make sure you're operating your business by the book. Some investors prefer to use a professional Registered Agent to save a few dollars, but we find having a qualified attorney to help defend your real estate empire is well worth the investment.

Why Choose Royal Legal Solutions to Serve as Your Registered Agent?

At Royal Legal Solutions, we have served as Texas Registered Agents for our clients for years. We are real estate attorneys and investors ourselves, and well aware of the legal ins-and-outs of this role. Further, an attorney is the ideal legal face of your business. Our prices for this service are lower than market average, and competitive with some "professional Registered Agents." The difference is that we have the qualifications and credentials to back it up.
If you have questions about the Registered Agent requirement, contact us today If you're considering forming a business entity such as a Series LLC in Texas, Royal Legal Solutions can also serve as your in-state representative. Don't neglect this legal requirement for your out-of-state LLC or Series LLC. Take action and stay compliant by scheduling your personalized consultation today.