I have a house overlooking a lake in South Dakota. This is my primary residence & the mortgage is held personally on a 30 year note. I file for "owner occupied" status and have the mortgage interest fully/partially deducted on my tax returns.
I found the demand for my house on short-term rental sites such as AirBnB & VRBO quite lucrative. I also have a single-member LLC with 5 other full time rental houses. I run my short-term rental business out of my personal house under my LLC, which I drew up a lease between that creates an agreement to pay for utilities, internet and common household products I need to function my business in exchange for the property. The only monthly bill my LLC doesn't pay for on my house is my monthly term installments for principal/interest/taxes.
Since my house is held personally, if I choose to have the LLC burden the payment to the bank, I'd have to declare that as "rental income". However, I'm looking into either Tenancy-In-Common (TIC) or Joint Tenancy-In-Common between myself & my LLC on the deed so the LLC can burden the payments.
If I get that switched over, then my personal income isn't affected (so I'm not paying post-tax dollars to my mortgage) & my LLC will show a loss, which will shield my personal income at the end of the year. But then when I go to sell the property down the road, I plan to use a 1031 to buy my next property. However, the payment would have been serviced by my LLC for X amount of years, which is 100% tax deductible.
Also, since it's still my full time residence, could I claim a portion of it to run/operate my LLC as my home office? What about mortgage interest deduction on the personal side? Seems far-fetched as it would be double dipping.
Thoughts? Has anyone else had experience with both their personal name and their LLC name on the deed of a property?
You're making this overly complicated.
Short-term rentals are complicated as is, and have different tax treatment than traditional, long-term rentals. For the deep conversation, you should consult your tax professional. If you want to self-educate, there are an insurmountable number of posts you can find by searching BP, either with the magnifying glass above or through google.
You don't need lease agreements between you, the LLC, and the bank.
Just keep track of airbnb revenues, rental days, and all expenses. Your tax professional will use this to report and categorize the income.
I would find a good accountant. Many people on BiggerPockets will only give their opinion. Why can’t you make the house a rental and rent it to yourself for $1/month, then sublease it to AirBNB customers.
Why can't you make the house a rental and rent it to yourself for $1/month, then sublease it to AirBNB customers.
IRC Sec 262, IRC Sec 183, and IRC Sec 280A and the related regs may stand in your way. Ignoring the internal revenue code, the judge-made-law substance-over-form doctrine and sham-transaction doctrine might also stand in your way.
But FWIW, you'll only have to "logic" your way out of it if you're examined or audited. Logic doesn't always work in tax court, authoritative guidance does. Good luck.
@Austen Iverson A single single member LLC is a pass through entity, so when you have an agreement between the LLC and yourself personally, it is really just writing an agreement with yourself. Anything you are "paying" yourself just becomes income you have to claim personally. Your taxes are the same with or without that LLC. The LLC is for asset protection, not tax reduction.
Since the property is your personal residence, you need to split all expenses between personal and business. You can't deduct 100% of your utilities if you are living there. Injecting the LLC doesn't change that. For example if you are renting 50% of your house continuously, you could potentially claim 50% of the expense. Have a CPA look at it, because you need to consider percentage rented and days of rental use. There is no way you can legally live in the property as a personal residence and have 100% of the expenses, including mortgage payments deducted. There are ramifications for Federal and State tax fraud if you claim 100% of the expense. State because you are getting owner occupied discount on taxes, Federal because you would be over claiming expenses.
Also you mentioned that you are claiming your personal residence mortgage interest as a deduction. Does that mean you are itemizing instead of taking the standard deduction? With the newer tax code, the standard deduction is likely better than itemizing. If you are taking both the standard deduction and deducting 100% of your mortgage interest, that is not legal.
As far as burdening the payments - in any rental property, only the taxes and interest are a tax deduction. Your wording implies that you are deducting your entire payment on your taxes. Your payment is not 100% deductible. Also keep in mind depreciation plays into this, which you don't mention at all.
If you are using AirBNB, be very careful with what you claim for income and expenses. It is easy for the IRS to verify how many days the property was rented and how much income you received. If it doesn't match your taxes, there is a problem. Some things you are saying contradict tax code and leaves you at audit / penalty risk. I would talk with a tax professional.