Although she was born in Russia, Marina Parkin considers herself a Canadian, having lived in Toronto for most of her life. A graduate of York University, she is certified as an accountant both in Canada and in the United States. She came to Sarasota 10 years ago and worked for a number of smaller accounting firms before going into partnership with JoAnn Koontz last November to form Koontz & Parkin; Koontz also heads her own law firm. They just went through their first tax season together and continue to keep busy.
Correspondent Chris Angermann interviewed Parkin at their office on Sarasota’s Main Street about using limited liability corporations (LLCs) as a way of protecting real estate assets.
Q: Why create an LLC for a real estate property?
A: The purpose is to protect a particular asset from the liability that you might have otherwise. We want to protect you from cross contamination of liability, whether it’s business or personal.
If you’re involved in a car accident, for example, with a catastrophic liability in excess of your limit, or your insurance doesn’t cover it, someone could use your property for collection purposes. Creditors could put a lien on it; they have a right to foreclose, etc.
The opposite is true, too. If something happens inside the property, like a tenant having an accident in the swimming pool or a trespasser getting hurt seriously. I’m talking about something major, not just someone breaking a leg. If it’s the fault of the landlord, then they can come after your personal assets. Any unprotected assets are game — like money-market accounts, stock brokerage accounts, CDs, cash, other homes and cars. Things that are protected include 401(k)s, homestead property in Florida, annuities and certain types of life insurance. But most people don’t have the bulk of their wealth invested in those items, so without some protection most, if not all, of their personal assets are exposed.
If the property had been in an LLC, the only thing available for the collection of the creditors would be the insurance proceeds and the physical property itself.
Q: Is this approach for everyone?
A: No. We don’t recommend it for your home. We wouldn’t want to put where you live in an LLC because it would prevent you from enjoying the homestead benefits. We’re talking about people who are renting properties, holding them for investment, builders who are renovating a house for flipping, and second-home buyers.
Q: Is there a particular time that’s best to do it?
A: It’s best to do it before you purchase the property, before closing. If you decide to do it later on, it could get expensive. You won’t be able to amend your title insurance policy and will have to purchase it again. You may have to pay documentary stamps for tax if there’s a mortgage on the property. Even if you’re just taking it from you as the individual owner to the owner of the LLC, it can run several thousand dollars.
Q: Can people from other countries take advantage of this?
A: Yes, it’s a great vehicle for foreign investors. They can’t really form a corporation here, but they can form an LLC, and then buy the property, rent it, generate income, and still get that legal protection. It’s a huge benefit for them.
They won’t be able to avoid the 10 percent withholding requirement that the IRS has for foreign buyers according to FIRBTA — the Foreign Investment in Real Property Tax Act. If they just shove it in an LLC, but are the only owner of the LLC, and its only purpose is to hold this piece of real estate, the LLC is considered a foreign person, and the 10 percent withholding on the sale of the property still applies.