We own our home. Can I deed property to our LLC? Draw up a lease where we pay rent and they pay utilities maintance? Can I write off expenses through llc?

[Opus 17]

Someone else may have a better answer, but even if this is legal, I think it's a terrible idea.

As your personal home, you can deduct mortgage interest and property taxes.  You can't deduct other expenses.  But, when you sell, and assuming you have owned the home and lived there at least 2 of the last 5 years, you get to exclude $500,000 of capital gains from taxation.

So let's say you sell it to the LLC.That gives the LLC a certain cost basis as of the date of the sale.  The LLC rents the home to you for the fair market rental value.  That might be considerable higher than your mortgage payment, especially if you consider the FMV rental value with all utilities included.  The LLC takes out a mortgage (because I can't even wrap my head around how you would transfer personal assets into the LLC sufficient to buy the house outright) and the LLC uses your rental payment to pay the mortgage, property taxes, utilities and liability insurance (but you have to pay for contents insurance separately).  The LLC also deducts depreciation.  If the LLC shows a profit, you pay income tax on the profit (you pay income tax on your rent payment).  If the LLC shows a loss, you can deduct that as a NOL within certain limits.  When the LLC sells the house, it pays depreciation recapture on the previous depreciation and it pays full capital gains tax on the rest.

But if you don't charge yourself fair market rental value, then you can only deduct expenses up to the amount of rent you collect, you can't show a loss.

I don't know about your house, but Zillow says that my house has an FMV rental (without utilities) of $1300 per month and my mortgage is $950.  So if I were to sell my house to an LLC that I owned, that would be a fancy way of charging myself $1300/month in rent for the privilege of paying income tax on the "profit" (my own rent payment) and paying cap gains when I sell.

[pruett140]

Thank you for your responses. I am meeting with a business attorney and a cpa because I clearly have no idea what I am doing. I have been listening to some family and friends that swear by it. I will meet with professionals to see what the best options are. I dont want to pay taxes to wa-zoo or get into trouble. what I have been told that even sparked this idea , is as follows  :

depreciation expense. Also what you would want to do is lease the house from the LLC that owns it. It would NOT be your home.

If they take away the personal mortgage interest deduction, then moving the home into an LLC, the LLC would still have the interest as a legitimate business expense. You would be a member of the LLC that owns the home. If the LLC lost money, that would reduce your income.

Legitimate business expenses include:
Depreciation of the building over 27.5 years
Depreciation of any equipment the LLC owns
Interest
Repairs
Maintenance
Cost of collections
Banking expenses
Office expenses
Any salaries for employees of an LLC
Utilities
Telecomm bills

[Opus 17]

Hrmmm.

"If they take away the personal mortgage interest deduction" -- that's a big If.  And you don't know what other changes to the tax law might be made that also affect this strategy.

You've left out the capital gains tax, that's going to be a big negative against those deductible expenses.  All that depreciation you deduct now will be taxed back when the LLC sells the house, any any gains over that are taxed as long term capital gains.  They're tax-free if you own and occupy your personal home.  If you sell the house to the LLC for $200,000 and the LLC later sells for $300,000 when you are ready to move, that's going to result in $15,000 of capital gains tax. You'd have to deduct more than $60,000 in home expenses over the years before you broke even.

And "Any salaries for employees of an LLC" what does that mean?  Your LLC will hire you as property manager?  So that means that you pay rent (out of your regular day job after-tax income I guess), and some of that rent is returned to you with a W-2 attached so you can pay tax on it again?  

If you charge FMV rent and the LLC makes a profit, you pay income tax on that.  In other words, you take after-tax money from your other job, pay rent to the LLC, which pays tax on it again.

If you charge FMV rent and the LLC shows a loss, how will you benefit from that?

[pruett140]

I agree with what you are saying . That is why i always ask before just doing. I do not know how or what they personally are doing to have not experienced this. We are actually saving to buy another home. Everything  you  have said would make it not in our best interest to proceed. Il definetly consult our attorney and cpa on a different plan of attack . Thank you for your time  (;

[bwa]

I agree with Opus.  If for no reason than the loss of exclusion on gain, it would be a terrible idea.

Have you read somewhere that recommends it.  If so, what reason do they give?

[Sandysdesk]

@pruett140 

Can you please share the advice the attorney gave you?

I am curious.

Thanks in advance

[xmasbaby0]

@Sandysdesk This thread is actually very old, so you will not get a reply from anyone who posted to it.  When the user forum changed from Answer Xchange to Real Money Talk several months ago, some very old threads were migrated over with June 2019 dates.  This is one of them.  If you want to ask about this topic please post your own new question about it in a new thread that you create by going to one of the headings such as Investors and Landlords and then click the blue "ask a question" button.