Purchasing 2nd house Hack but want to write off improvement and repairs with a LLC

Member since 2020 · 4 posts · 7 votes

Hello,

I'm Purchasing my 2nd house hack as a new primary (5% down) and turning my old primary into a rental. My new house hack property needs some repair and I plan on doing most of the work myself. I've been in construction 10+ years and did all the work on my last primary myself with home owners permits but I wasn't able to deduct any of the expenses on my taxes.

I was thinking I could start an LLC and and right off/deduct some of these expenses in my taxes. Does anyone have any experience on how to do this? Would I need to start the LLC and pull permits through the LLC? Would I need to charge myself as the homeowner for the work I'm doing as the contractor?

Thanks for expertise and time.

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Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 457 posts · 336 votes
1y
You don't need an LLC to write-off expenses for having a rental. Ultimately, talk to your CPA, but all of my house hacked properties I own under my own name or any expenses I had while living there for the other units I deducted without an LLC.
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Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
1y
What makes them deductible is not an LLC, but you using the home for investment. Since you state this is for your personal residence, then there isn't a way to make them deductible specifically. You already get the benefit one of two ways.

First if you live in the home as a primary for two years and sell you get the tax free gain exclusion Sec 121. Essentially you aren't paying taxes on the gain anyway, so deducting it is irrelevant. Think about it this way, would you rather spend $100K on buying, $50K on rehab and sell for $200K ($50K profit) and deduct your expenses but owe tax on the $50K so net maybe $30K? Or same numbers but instead you just keep the whole $50K?

Second, if you did this and convert it to a rental, then your rehab is captured in the value increase of the property. When you move out and start depreciating the cost of the asset you start depreciating the improvements at the time of conversion. So your repair costs are included in the home value that you depreciate and they lower your taxes on the rental income.

Either way you are getting a tax benefit from your work.
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
1y
Setting up an LLC does not equal more tax benefits. If you're paying yourself for your own labor, what you'd be doing is moving money that is passive income to ordinary income which is not needed at all.

as for the deductiblity of improvements vs repairs, there's specific tax laws that address this. I'd recommend working with a cpa to maximize these expenses to see what you can realistically write off vs capitalize.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
1y
@Nicholas Martinez This is a smart question, and you're not alone—many house hackers with construction experience wonder how to optimize tax benefits by involving an LLC. Here's a breakdown of what works and what doesn't when trying to write off improvements on your primary residence through an LLC:
- Improvements on your primary residence (even if it’s a house hack) are not deductible for tax purposes. The IRS doesn't allow you to deduct personal living expenses, even if you perform the work through your own LLC.
- You cannot bill yourself through an LLC and claim a deduction. The IRS would consider this a circular transaction without a valid business purpose, and it wouldn't reduce your tax liability.
- Permits and LLC ownership: Pulling permits through an LLC doesn't help unless the LLC is the actual legal owner of the property—and if that's the case, you can't use a primary residence loan (5% down conventional). Owner-occupied loans must be in your personal name.
- What is deductible: Once your old primary becomes a rental, that’s where the tax benefits kick in:
  - You can depreciate the structure (over 27.5 years).
  - You can deduct repairs, maintenance, and upgrades directly related to the rental portion.
  - If it’s a multi-unit property and you live in one unit, you can deduct improvements to the rental units only.
  - Labor you perform yourself is not deductible, but materials and third-party costs are.
- Better strategy: Keep the rental portion in your name or a rental LLC if you're okay with commercial financing. Track all rental property expenses carefully, and deduct materials, tools, and costs associated with the rental, not your new primary.
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.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
1y
Creating an LLC does not turn personal expenses into deductible business expenses.

If you moved out of your first house-hack and it is now 100% a rental, all future costs will be deductible. You also want to look to see if the renovation work you did before will not be depreciable.

Best of luck!
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