Tax Benefits of Starting An LLC
Hi there!
Scenario: My husband and I have been renting out or old primary residence in the Tacoma, WA area and plan to sell next spring if the market is as good as it currently is. Based on comparable sales, we should make between $80 and $110k. We are wanting to utilize a 1031 exchange to buy a duplex in an area (Tri-Cities, WA) that has much lower housing prices and a good rental market. Our annual income is too high to get tax benefits from passive investments. My questions:
1. Would forming an LLC allow us to deduct expenses with the rental?
2. What is the cost to transfer the mortgage/deed to the LLC?
3. Any other work arounds out there besides getting a real estate license, which we aren’t really sure we want to do?
Most Popular Reply
- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
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@Carly Christiansen, your goal is additional tax benefits. As @Ashish Acharya said the LLC is just a corporate accounting structure that won't do that unless you turn it into a regarded entity and can then you could possibly do some damage with corporate retirement plans. But operationally the LLC is a liability protection tool.
Your best and simplest bet is to follow . through on your idea to 1031 but don't just buy one property. In order to defer tax on the gain from the sale in a 1031 you must purchase at least as much as you sell. So you won't pay tax on the gain but you will simply continue with your current depreciation schedule which is a tax break. If you do the 1031 and purchase more than you sold then the additional purchase amount is additional depreciable basis and would give you more annual tax break.
The 1031 doesn't have to be 1 for 1. You can sell one and purchase more than one using your cash as down payments if you wish.
- Dave Foster
