How to handle my principal residence (partial Airbnb) with LLC ?

[x_m_z]

Hello,

My wife and I just purchased a house weeks ago, we are living in the main floor and planning to rent the basement through Airbnb. We also planning to setup an LLC for Airbnb to reduce the liability risk. I would appreciate your help for my questions:

1. We already purchased the house under our personal name, can we transfer partial of the house (basement) or the whole house to the LLC to reduce the liability risk?

2. If yes to question 1 (transfer partial or whole house to LLC), will this transfer affect our principal residence tax benefit ($500,000 tax free capital gain when sell)?

Thank you in advance.

[Critter-3 · Accepted solution]

1. We already purchased the house under our personal name, can we transfer partial of the house (basement) or the whole house to the LLC to reduce the liability risk?  You cannot ... the LLC is useless for you ... instead just  upgrade your liability insurance on the home ... the increased cost will be an expense on the Sch E. 

[Carl]

will this transfer affect our principal residence tax benefit ($500,000 tax free capital gain when sell)?

Yes. If the LLC owns any portion of your property, then that portion is business property and you will not qualify for any tax relief under the "2 of last 5 years" rules.

Besides, it's rather difficult to title a portion of the property to the LLC.

It's significantly cheaper to just increase your liability insurance. For one of my rentals, it only costs me an extra $125/mo to increase liability insurance from $300K to $1M.

[Anonymous_ · Accepted solution]

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@Carl wrote:

Besides, it's rather difficult to title a portion of the property to the LLC.

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It is actually not possible to title a portion of a single family home to another entity (or individual) for the purposes of county records.

An adequate amount of liability insurance is the answer in this case.

[x_m_z]

Thank you all for your help!