My primary house needs major repairs and I have been planning to fix and rent it out. I moved out of the house 5 months ago so repairs could be done. The repairs will be over $40,000. Should I do this as the owner of the rental and write off expense (over the years) or form an LLC and write it off as a business expense? FYI: The repair work is crawlspace/vapor barrier/sump pump/dehumidifier and outside drainage along the house and hurricane windows.
If I form an LLC, will I need to re-finance with a business loan? I have a Due On Assignment clause.
If it is too late to form an LLC as repairs need to be done asap, are there any rules I need to know about turning this property into a rental under my name? I do not have an umbrella policy yet.
@Leslie Baker , it doesn't matter. You can't take different expenses just because you do or don't have a property in a LLC. The advantages of LLCs are really about asset protection, so it still may be a good idea nonetheless.
Don't get hung up on the Due-On-Sale clause. If you have a loan that was sold to Fannie Mae, they explicitly allow you to move title into a LLC. If your mortgage is still held by the bank, give them a call and see if they'll have any problems.
Make sure that you're being diligent about your bookkeeping and let your CPA know about your plans now, not next April when you're doing your taxes.
Lastly, are you sure that your home will make a good rental? Not all of them do. Especially, if it's in a relatively expensive area (values above $200k). Have you run a full rental analysis?
Forming an LLC doesn't necessarily allow you change the character or the expense/payment nor does it allow you to fast-forward the ability to take the expenses.
First and foremost - you need to determine what the property is to you right now.
Is it a personal residence or an investment property. This is based on intent and it seems like its more of an investment property.
The second thing is it appears that many of the items you will be fixing get "capitalized" instead of immediately expensed in the current year.
I would work with an accountant as you proceed.
Thanks for the reply. I appreciate it.