Live in then rent questions

3 Replies

 We somewhat have a plan and have a couple questions.... our plan is to do a live in then rent a few times until we have 5 to 10 paid for properties.

We have been living in our current residence for about 5 years and we are interested in renting it out and purchasing a different primary residence. If we discover that landlording is not for us and decide to sell the first house in a year or so, would we have to pay capital gains taxes on it? 

question 2, should we start an LLC before buying house number 2 and putting that house under the LLC? and should we have an LLC setup on house number 1 before we start renting it?

@Steven L. In your situation, if you decide to sell your current residence within up to 3 years from when you switch it to a rental, then the capital gains will be excluded from your income up to $250k single and $500k married. You will have to pay tax on any depreciation recovered in the sale. If you transfer this property into an LLC, then you will pay capital gains, as only individual taxpayers qualify for the exclusion. If you purchase house 2 for your primary residence, then you may not want to put that in an LLC while you are living in it, so that you get the deductions for mortgage interest and property taxes, plus any homestead exemptions provided by your county or state. Hope this helps.

Steven, Looks like you are getting tax advice. I have an article that identifies the different LLC's on the market and how they are taxed for your information. https://www.biggerpockets.com/blog/different-types-of-llcs-and-the-ways-they-pay-taxes.  There also are different tax implications for LLC's based on the State you are in, and strategies to keep your operating and maintenance costs lower.  You could check out some of my other articles that may fit your situation at https://www.biggerpockets.com/blog/contributors/scottsmith-2?page=1




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