​First post - finance/tax questions about some Seattle-area land

2 Replies

Hey everyone, first post here. Based in Los Angeles but looking to possibly invest in Seattle and surrounding area since my wife and I have family up there and may make the move years down the road. Been listening to podcasts and doing a lot of reading and it won't surprise anyone that I find this community to be an amazing resource full of some really thoughtful and kind individuals.

We are currently making an offer on a piece of land up in the Seattle area (hopefully around $170k) that appealed to us because of it's location for a possible home when we retire. Not exactly an investment since it will eventually be a primary residence, but we may have a few ways to generate some monthly income before in the meantime (and possibly have some small part of it function as a light income property with we finally break ground).

Couple newbie details in case anyone has any insight. Apologies in advance for my absolute ignorance with this stuff.

1) We plan to purchase all cash in our names then transfer the property into an LLC that we haven't created yet, less for liability and more for tax purposes (our accountant vaguely suggested we should start an LLC that does really anything so that we are able to write off more home office, travel and equipment expenses that we can no longer do since recent tax changes). Still need to dig around and research more, but we are new at this and just hoping it's not a silly move or there aren't any complications (i.e. need ing to do the LLC part at purchase-time or getting in trouble later saying "hey we have an investment LLC that owns a piece of land. It's not turning a profit yet, but in the meantime here's a bunch of business, travel and equipment expenses we would like to write off")

2) Did I completely drop the ball not putting this thing in a self-directed IRA? I've read much about that but there is a lot of interest from other parties in this property and we wanted to make the strongest offer possible with the least amount of financing hoops to jump through to lock it up.

Anyway, kind of a scattershot intro, but figured I should at least introduce myself after lurking around for a while and having finally starting to venture out into possibly purchasing something other than my primary residence here in SoCal =)

Jake

If this is going to be your primary residence, then forget all of the fancy LLCs, Self Directed accounts, etc.

First - you cannot personally use an asset owned by your self directed IRA. So if there is any thought of personal use, then put aside the issue with the Self Directed account.

Second - same issue with an LLC. An LLC is for operating a business. You cannot operate a business in which you are renting a house to yourself or whatever. If your CPA is suggesting such a thing, then I would check to see if he has a criminal record because if they don't have one now, they likely will soon with advice like that.

Third - even if you were going to rent this future house out, an LLC does nothing for you tax wise. Everything with a rental in an LLC is taxed exactly the same as when it is in your personal name. An LLC is ONLY for liability protection and anonymity to your tenants - nothing else.

Thanks for the detailed reply, this is invaluable info. For what it's worth, it will not be our primary residence until years down the road depending on how things go (when we "retire"), but it sounds like, regardless, we should steer clear of both options (LLC and fancy self-directed IRAS) unless we want the LLC for pure liability peace-of-mind if we did somehow rent out the land or a structure on it (if it wasn't our primary residence).

Thanks again for taking the time to reply, still figuring it all out and this really helps.