Can I deed properties in my name, claim income to LLC, and write off LLC business expenses?

[snwiggins]

My business is buying rental property.  I deed properties in my own name.  The rent is deposited to the LLC bank acct.  Can the LLC claim the income? The reason I care is that there are lots of business expenses (office equipment, vehicle expenses, etc.) that I'd like to write off, but it looks a bit fishy if my LLC shows no income.

You might say that I should write these items off on my Schedule E on my personal tax return.  Many write offs don't fall under a specific property address that I own, but rather are general expenses required to research, acquire, and rent property.  How do I write off "business" expenses for a business that has no income?

[TaxGuyBill]

Is this a Multi-Member LLC (Partnership)?  Or is it a Single Member LLC?
Has the LLC made any elections to be taxed as a corporation?

Your post indicates you are using the "Business" version, which is for Partnerships and Corporations.  Is that correct?  Or are you preparing your personal tax return?

[SweetieJean]

Is it related to this?
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/2733662-can-i-deduct-expenses-paid-for-flight-training-such-as-air...>

[Critter]

I HIGHLY recommend you seek a qualified bookkeeper & tax pro to get you set up correctly since these are confusing subjects and getting them wrong can cost you big time later.

[snwiggins]

Thanks for the responses.  TaxGuyBill, yes I am using the "Business" version.  SweetieJean, no, that is not related to this question.  Critter#2, yes thank you, I do need tax pro advice... which is why I started asking here.  So far nobody has attempted to answer my actual question....... anybody else?

[SteamTrain]

They can't provide any guidance about what you might need to do until you answer TaxGuyBill's question about

1)  whether it is a muti-member LLC/partnership with other people ....or just you  (or just you and wife)
2) whether the LLC made any elections to be taxed as a corporation?

[snwiggins]

Ahh - thanks.  The LLC members are simply me and my wife.  The LLC has not made any elections to be taxed as a corporation.

[SteamTrain]

that should help.
..I'm not particularly useful in this area...but someone or @TaxGuyBill should answer by the end of today

[Opus 17]

What state do you live in? That makes a difference for LLcs where the only shareholders are spouses.

[snwiggins]

I live in Alabama, but the LLC is formed in Delaware.  The properties I own are in Alabama, Kentucky, and Florida.

[Opus 17]

Neither Alabama or Delaware is a community property state.  That means that your 2-shareholder LLC must report and pay income taxes separately on form 1065 (unless you elect to be treated as a corporation and file form 1120).  The LLC tax return issues K-1 forms to the shareholders who enter those forms on their personal tax returns.

You can't treat the LLC as a disregarded entity and file using schedule C.

How that affects the proposed transaction, I can't tell, but it may affect the other answers.

One comment I do have is that the IRS uses a substance over form doctrine when auditing.  If a transaction is designed purely to look like one thing when it really does another, the IRS will tax you based on the other thing (the substance) and not the official form, especially when the form evades taxes.

I think the answer is, you're doing it wrong.

If you own the properties but don't collect income, then you have no way to write off expenses on schedule E.  And if the LLC collects the rent but doesn't own the property, then it has income but no expenses.  (The LLC could pay for repairs and other expenses but can't take depreciation.)

Why are you doing it this way?  Why not own the properties in your own name and collect the rent in your own name; or, sell the properties to the LLC and have the LLC collect the rent and pay the expenses?

Potentially the LLC could lease the property from your and then sub-lease it to the tenants, but I think you need more professional advice on that--remember that free advice on the internet is worth exactly what you pay for it.  Many people on this board are very knowledgeable, but don't expect us to stand with you if you are audited or if you discover that a particular transaction form leaves you in the lurch.

[TaxGuyBill]

I agree with Opus.

So in direct answer to your question, "no".  It seems to us that your LLC doesn't have any income or expenses.  It doesn't own the property.

Although there have been some rulings that if the proper contracts are in place, you could hypothetically do it the way you are trying to do.  However, there would be no purpose in going through the legal work to do that.  It would be a lot of work and expense to set that up, and you still probably wouldn't have the "Limited Liability" that a LLC has (which is the purpose of the LLC).

For now, report the rentals on Schedule E (page 1) of your personal tax return.  If you want protection of Liability, get a good insurance policy for that.

If you want the rentals in the LLC, you need to transfer ownership to the LLC.  The would mean transferring the Titles, Mortgages, etc..  Also, the LLC would need to be registered in each State that is operates in.

As for the 'shared' expenses, just divide them up and allocate them between the properties.

[Clarkjd]

You’re not alone in wondering this. My question would be if this is a single person LLC would the taxes pass through to my personal return so whether it was depreciation or MI it would ultimately be the same? That was I can at least show income to the LLC and possibly purchase through it next time?

[Carl]

My question would be if this is a single person LLC would the taxes pass through to my personal return so whether it was depreciation or MI it would ultimately be the same?

A single member LLC is considered a disregarded entity by the IRS. All income/expenses for a single member LLC are reported on SCH C as a part of your personal 1040 tax return. However, residential rental real estate produces passive income.  So it's not reported on SCH C. All rental income/expenses get reported on SCH E as a part of your personal 1040 tax return. Nothing concerning the rental property would be reported on SCH C. So if rental property is all you have in the LLC, you have no need to file a SCH C at all.

The only way you would report rental income/expenses on SCH C, is if you are "in the business" of renting property and you provide substantial services that are directly beneficial to the tenants on a recurring basis.In other words, your rental activity would have to qualify as a "trade or business" per IRS rules. The IRS defines a trade or business at https://www.irs.gov/charities-non-profits/trade-or-business-defined The typical long term residential rental real estate does not meet that definition.

[Clarkjd]

Thank you @Carl , My follow up question is that since the properties are in my personal name, and if I had the LLC set up as a "Property Management" with an operating agreement between myself and the LLC. Could the write offs from expenses of the rental property that are expensed by the LLC pass through to my personal return, and then I be able to write off interest and depreciation on my own 1040 (that's not passed through from LLC). I can have an umbrella policy for coverage, but would like to show some income to the LLC to be able to purchase properties through the LLC in the future with out losing tax benefits from the property. Thank yo again for your help.