Question: New Tax Plan and LLC Implications

[Pete Fiannaca]

Hey BP -

Thank God we have people in this community who eat, sleep and breathe taxes, because this stuff is going way over my head. Couple quick questions regarding being a small time landlord, the new tax plan (TCJA) and starting an LLC...

I currently run a small operation (<10 units across 3 properties). I do not have an LLC set up, but rather elected to get an umbrella policy when I started out. Here we go...

1) Without having a business entity in place, would I qualify for the new 20% pass-through deduction for net rental income, or would I need a business entity (LLC, Corp, etc) in order to take advantage of it?

2) Looking at section 179 expensing, would creating an business entity such as an LLC now (in Feb 2018), have any implications on major purchases made at the end of 2017 (heavy truck used 75% of the time for rental activity/property maintenance, applicances, etc). Would I be able to take advantage of the 100% bonus depreciation?

3) Are there any lesser-published notes or important things to consider with the new tax act that should give me second thoughts about putting my properties into an LLC and creating an actual business entity moving forward?

Thanks in advance for the wisdom, BP community!

-Pete

[Alan Rohrer]

Hey Pete- congrats on starting up the rental business! I'll do my best to answer some of your questions:

1) You still qualify for the 20% deduction (with the same limitations) as a sole proprietor or partnership or LLC. A corporation would be subject to different rules, but you likely wouldn't choose a corporation for a rental business.

2) You can take 179 as a sole proprietor (schedule C) on eligible property acquired for business use... your description fits both of the categories. However, note that you will have to reduce the expense by 25% because of the 25% personal use.

3) Having properties in an LLC is more of an asset-protection strategy than a tax strategy, as the tax implications will be similar. I would make sure you check with an attorney when thinking about transferring properties to an LLC as it can sometimes trigger the mortgage to be due (which I imagine you wouldn't want!)

Let me know if you have any other questions!