Tax benefits of an LLC over having a property on my name

[Allende Hernandez]

Good afternoon fellow investors,

I own a property (split in 4 rentals) which I bought last year under my wife and my own name as a primary residence with a conventional loan. We then decided to rent it instead and stayed in our current home. We put a significant amount of money for renovations and repairs into it.

When time came to file our tax return this year our accountant said that because of the standard deductions, income, etc...that amount we spent on repairs and renovations was not going us help offset the income generated by the property as our deductions were maxed out. She suggested then that in order to be able to maximize our potential deductions we should either become an active Realtor or put the property under an LLC.

I've read in several posts here in BP that transferring a property into an LLC doesn't necessarily improve our tax situation. Hence my confusion.

What are your thoughts?

[Ashish Acharya]

@Allende Hernandez Great question and it’s one that comes up a lot with new landlords who want to make the most of their tax benefits.

To clarify: putting a property into an LLC does not, by itself, create new tax deductions or unlock passive losses. The IRS treats single-member LLCs as disregarded entities (they’re taxed the same as if you held the property personally). So from a pure tax deduction standpoint, nothing changes by simply moving the title to an LLC.

Here’s what does matter for tax purposes:

• Your ability to use losses: Even if the property is generating a paper loss (thanks to depreciation, repairs, etc.), you're often limited to $25,000 of passive losses per year—and that phases out completely if your modified adjusted gross income (MAGI) exceeds $150,000.
• Real Estate Professional Status (REPS) or the STR Loophole: To use rental losses to offset W-2 or other active income, you must either:
  • Qualify as a Real Estate Professional (750+ hours, primarily in real estate) and materially participate in the property.
  • Or, if it's a short-term rental (average stay under 7 days), materially participate (100+ hours and more than anyone else) to convert it from passive to non-passive—even without REPS.
• Standard deduction vs. itemizing: You mentioned your CPA said deductions didn’t help due to the standard deduction. That may apply to personal deductions (like mortgage interest), but rental expenses (repairs, depreciation, etc.) are taken on Schedule E and are not affected by whether you itemize or take the standard deduction. If those expenses truly didn’t reduce your taxable income, it’s likely due to the passive loss limitation.

So what does an LLC actually help with?

• Liability protection, especially if you’re holding multiple properties.
• Partnership structuring, if you’re investing with others.
• Cleaner separation of finances, if you use a business bank account and separate books.

What You Could Do Next:

• If your goal is to deduct more, consider whether you (or your spouse) can meet REPS or STR criteria in the future.
• Speak with a real estate-focused CPA to double-check how those reno and repair costs were categorized (repairs vs. capital improvements), and how your passive losses were handled.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.