Renting 2 rooms in my home

6 Replies

Hi BP,

I recently purchased my first home and moved out of my parents house. I'm renting out two of the bedrooms and wanted to see if you all could help me determine if its beneficial to put the leases and check payments coming in under an LLC.

The LLC is already created and functioning- essentially my idea is that it would work like an operating company for the two rooms I'm renting out and I could put some of my expenses through there with pre-tax dollars. Does that make sense? Can the LLC pay my mortgage? I'm unsure of what the structure should look like given that I'm living in one of the rooms myself.

All comments are welcomed. 

Hi Chris,

I am not an expert and hopefully someone with more experience can chime in. I do have a degree in accounting so maybe I can be somewhat useful. Your concept is interesting, but I am not sure if you can have the LLC own part of your house. If you can it sounds like an accounting headache and will likely put you at greater risk for being audited. I believe you can have the LLC own the whole house even though you live there. One down side to that approach is an LLC will have to pay capital gains tax, if you have any, where a primary residence is not subject to capital gains tax up to a point.

For a while I ran the part of my basement that I rent out in my house just the same as with my other rental property, but eventually reversed course and just separated it out and filed it on my Schedule A instead and divorced it from my LLC. The tax advantages for Schedule A, as long as your income isn't over like $150k or some threshold, is good enough and you don't run into the capital gains issues and are able to truly separate your personal home from your business ventures, which is the point of having an LLC in the first place.

I've found this article on NOLO helpful in understanding tax issues for renting out rooms in your own house:

Tax Issues When Renting Out a Room in Your House

Thank you Anthony and Nathan. Nathan that article was very informative.

In terms of minimizing risks- can I use the LLC as just the "operating" company that manages the rooms (sort of like a property management company I guess) and I still own the place? Then.. Get the LLC to send me the payment minus its management fee. Is there any advantages to this? Am I just creating extra work for myself with little benefit?

Thank you all in advance.

I would think that creates more risk for you, not less.  Your tenant knows who owns the house and who to come after if something happens.  I am not sure what benefit you hope to have by having your operating company just manage the rooms.

Not legal advice here, obviously.