Tax approach for managing our own properties through an LLC

2 Replies

Hi Everyone,

Being that I have pushed the limits on time to do my taxes this year through an accountant, and being that I have been doing my own taxes for a long time, I am making an attempt to handle them again this year with rental properties now part of my life. I need some help/advice to get started. I searched the forums a bit, but didn't find any discussions directly related to our situation.

First, thank you to everyone on here to help open the world of real estate investing to so many people! And special thanks to Josh and Brandon for all their work on building such a wealth of knowledge!

Ok, first, my fiancé and I, who have full time day jobs have acquired and actively manage 3 properties. 2 triplexes and 1 twin home. We bought a new home in December and are renting out the one we left. The tenants there did not move in until the middle of January, so that income will be for next year. My fiancé owns one of the tri's in her name and both of our names are on the other, which we purchased this past May. She started an LLC in 2012 to manage that property, but we have since started a new LLC for the other property.

Here's my question, and possibly the start of many. We've invested a lot of time and money in the properties and the business, but have yet to charge or apply PM fees to ourselves. Although I would argue that we spend as much time on this business as our day jobs, my main goal is to minimize the taxes paid on the supposed income that we haven't yet realized. The repair fees that we've made will most likely exceed the income, but what is the best approach to maximize deductions and minimize taxes? I am thinking that we can either funnel more money through the LLC in the form of management fees and use the property management company expenses to offset it, or should we expect the repair and depreciation expenses to offset the rental income? Keep in mind that we are the owners and also the PM company.

Hopefully this makes sense.

Thanks for any help offered!

Sergio

Speak to a good tax accountant your PM company charging you property owing LLC are not at "arm's length", you have a sham transaction cooking.

I had to skip through to the question so might have missed something, but if you own both there's no benefit and you loss only goes to the income earned and carrying forward a bogus loss can cause issues. I suggest you see your tax guy for tax planning. :)

@Bill Gulley

Thanks for the reply Bill, but let me try and clear a couple of things up. First, we have a PM company, which serves properties that I own and don't own. For example, as I mentioned, one of the properties is totally in her name, but I help manage it. We are partners for now and not married, so we are filing separately. I am in a high enough tax bracket from my day job, so I need to minimize my extra income. And believe me, we are putting every penny of these investments back in the business. The purpose of us starting the PM company was more to protect ourselves than anything to do with bogus accounting. At the same time, owning a PM company should allow me to write off the business expenses associated myself, rather than only those expenses incurred as an owner. Keep in mind that we are not trying to use the investment arm to offset our day job income.

Thanks again

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