LLC your ADU to Save on Taxes?

Question

Hey everyone,

I'm currently in the beginning stages of converting my garage into an ADU. I wanted to see if there are any experiences with creating a LLC prior to construction to help with tax liabilities for the costs of the conversion.

If this is the case, how did you approach this and how did it benefit you?

Thanks in advance for the insight!

Matthew Forrest · Answer

@Ray Martinez

You should contact an accountant for more details.

I don't think the cost segregation study will be be beneficial enough to justify the cost. Those are typically done on properties that have a higher improvement value.

Wayne Brooks · Answer

An llc doesn’t affect your income taxes in any way..  Also, not sure what you’d do with the llc, transfer the whole property?  This would be a bad idea for a number of reasons, again with no tax benefit.

Allen Scoging · Answer

@Ray Martinez What did you end up doing?

I just started looking into this subject myself. I found this article:

https://www.adugeeks.com/post/...

Seemingly an LLC will benefit you by providing protection from any renter mishaps plus you can deduct the startup costs of the LLC. Seems like it is worth doing to me.

Gabe C. · Answer

@Ray Martinez LLCs limit legal liability, not tax liability. It is a pass-through entity tax-wise. I would refer to an accountant for this type of advice. It’s an area you don’t want to mess up, and planning ahead can be a benefit.

Basit Siddiqi · Answer

@Ray MartinezPutting the ADU into an LLC will not change your taxes.

Ray Martinez · Answer

Hey Matthew,

Do you use depreciation by a 5/7/15 year list or do you do the 27.5 avg depreciation? I heard you can itemize your expenses to do a 1 year depreciation total but it needs to be supplied with a cost study done by an engineer.

Thoughts?

Matthew Forrest · Answer

@Ray Martinez I do not have any LLCs or other entities and I am able to write off the expenses associated with my real estate expenses.

LLC your ADU to Save on Taxes?

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