Money saved for vacancy, CapEx, repairs subject to taxation?

Question

I have been setting money aside in my LLC for vacancy, repairs and CapEx in the future. Is that money taxable at the end of the year, and if so, are there best practices for how to handle setting the money aside (i.e. Should I just pull the money out as income, etc.)?

Brandon Hall · Answer

@Erik Bowling these funds are income and thus will pass through to you as taxable income. So yes, reserves are taxed.

Our clients place the funds into a reserve account. Generally, we're able to write down taxable income due to depreciation and amortization.

Erik Bowling · Answer

Thanks, Brandon. My reserve account is in the LLC's name. Is that OK? Or, does it need to be a personal bank account? This is my first year owning rental property so I have not gone through a tax filing yet.

Money saved for vacancy, CapEx, repairs subject to taxation?

2 Replies