Rental property under your LLC?

Question

Hi BP Fam,

I understand there are tax benefits to running your rental property under an LLC. Other than listing your entity on the lease, paying your mortgage from a business checking, and keeping rental income within that business account - are there any other essential items needed to ensure my rental property is falling under my LLC for tax purposes?

Thanks so much!

Jaysen Medhurst · Answer

There are absolutely no tax benefits to using a LLC, @Jordan Mandel. They are pass-through entities. LLCs provide asset protection and an organizational structure. If you only have a few properties, which you wholly own, it's probably easier to keep title in your name and make sure you have a robust umbrella policy for asset protection.

David M. · Answer

@Jordan Mandel

Agree that the LLC is for asset protection.  Your attorney addressing tax benefits is speaking out of turn.  Speak to an accountant.  they should you that there isn't a tax benefit.  Either way, the deductions are taken on SchE basically, and its passive income.

Yes, the need for a legal entity is discussed daily on BP.  Most people are trying to get around paying commercial loans as legal entities are not eligible for the usual residential loans.  The whole transferring Title bit is up in the air.  Maybe once or just to get started.  But, one opinion is once you establish a pattern of using your personal name to get the loan, then switch Title, it could like you are using the LLC as your "alter-ego" thus piercing your corporate veil.  Plus, there is the question of your Title insurance and homewoner/landlord insurance.   Discuss with a professional or two.

Good luck.

Kenneth Garrett · Answer

@Jordan Mandel

I agree what has been stated already.  LLC’s provide asset protection along with some anonymity. The tax advantage of owning rental property is because your in business and opens many doors for tax advantages.  There is much debate on BP regarding owning property in your name versus a LLC.  I prefer the LLC for asset protection.  Just a side note many people buy it in there name, get the residential financing rate and transfer it to an LLC afterwards.  It probably saves you 1% on the interest rate.  Yes the lender could call the note cause you transferred the property, but that is a very small percentage possibility.  Either way you have guaranteed the loan.  In the event they call it, just transfer it back.

Matt Ziegler · Answer

we hold our rentals in LLC's for asset protection.  The idea being that each LLC is insulated from the other assets. need to maintain all the requirements of your state to keep the entity benefits. (no co mingling funds, articles of organization, record keeping, meetings..Etc.)

There is no tax advantage that I am aware of, but it does keep your name off of the public records.

There has been a lot of discussion about this approach versus holding title personally and carrying good insurance...not sure which is more benefical...

Bjorn Ahlblad · Answer

As far as taxes and the IRS is concerned you are taxed on all income and the LLC is a 'disregarded entity' for tax purposes. Meaning it is not considered. Your lawyer could have been talking about, S corps and C corps and blah blah but that would be meaningless to you and your LLC. All the best!

Jordan Mandel · Answer

Well if rental income is reported on top of W-2 income, it would bump up your annual earnings and your tax bracket. Thinking that's what he meant @Jaysen Medhurst

Jaysen Medhurst · Answer

I don't really understand that recommendation, @Jordan Mandel. Rental income is separate from W-2 income. I'm not a CPA or tax attorney, so may be he knows something I don't, but I'm not following the logic.

Jordan Mandel · Answer

@Jaysen Medhurst

Thanks for the note! That's interesting. My tax attorney recommended I run the rental through my LLC for both asset protection and to shelter the rental income separately from my W-2 income.

I will be getting an insurance policy on the rental, so all good there. This is my first rental, so trying to keep it simple while also establishing a structure that is scalable.

Curious to hear your thoughts on the tax attorney's feedback.

Thanks!

Rental property under your LLC?

Most Popular Reply