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Level 2
posted Mar 7, 2025 7:56:49 AM

Owner Occupied Rental Property LLC

I own a rental property in NY where I live in one unit and rent out the other. For the past few years living here I have tracked all housing expenses in quicken and entered them into Schedule E that divides the personal % from the rental %. I would like to start moving these expenses under an LLC I formed because its my intention to move and rent the entire property out in the next few months. 

 

For tax purposes, I understand that the IRS treats passthrough LLC as disregarded entities so essentially does this mean that I continue entering in the revenue/expense on schedule E as usual? In addition, if I am still living in the property while having the LLC, what does this mean for the 50/50 split in expenses? Run them through the LLC and reimburse the account for the personal split? Ive seen some forums suggest paying rent to the LLC but I'm not sure about this. Can't the LLC just manage the rental side of the property until the whole house is rented out? Thanks in advance. 

0 2 2004
1 Best answer
Expert Alumni
Mar 7, 2025 2:45:14 PM

It depends.  Assuming if you are a single member LLC, here are some things to consider.

 

  1. Reporting Revenue and Expenses: Since the IRS treats single-member LLCs as disregarded entities by default, you would continue reporting rental income and expenses on Schedule E of your personal tax return. The LLC itself doesn't file a separate tax return unless you elect a different tax classification (e.g., S-Corp or C-Corp, or partnership). 
  2. Handling the 50/50 Split: While you're still living in one unit, you can continue dividing expenses between personal and rental use, as you've been doing. If you move the rental-related expenses under the LLC, you could reimburse the LLC for the personal portion of shared expenses (e.g., utilities, maintenance). This keeps the LLC's finances separate, which is important for maintaining liability protection.
  3. Paying Rent to the LLC: Some people suggest paying rent to the LLC for the unit you occupy to formalize the arrangement. However, this isn't strictly necessary unless you want to create a clear landlord-tenant relationship with the LLC. If you choose not to pay rent, the LLC can still manage the rental side of the property while you handle the personal side separately.
  4. Transitioning to Full Rental Use: Once you move out and rent the entire property, all expenses and income would flow through the LLC. At that point, you wouldn't need to split expenses between personal and rental use anymore.

2 Replies
Expert Alumni
Mar 7, 2025 2:45:14 PM

It depends.  Assuming if you are a single member LLC, here are some things to consider.

 

  1. Reporting Revenue and Expenses: Since the IRS treats single-member LLCs as disregarded entities by default, you would continue reporting rental income and expenses on Schedule E of your personal tax return. The LLC itself doesn't file a separate tax return unless you elect a different tax classification (e.g., S-Corp or C-Corp, or partnership). 
  2. Handling the 50/50 Split: While you're still living in one unit, you can continue dividing expenses between personal and rental use, as you've been doing. If you move the rental-related expenses under the LLC, you could reimburse the LLC for the personal portion of shared expenses (e.g., utilities, maintenance). This keeps the LLC's finances separate, which is important for maintaining liability protection.
  3. Paying Rent to the LLC: Some people suggest paying rent to the LLC for the unit you occupy to formalize the arrangement. However, this isn't strictly necessary unless you want to create a clear landlord-tenant relationship with the LLC. If you choose not to pay rent, the LLC can still manage the rental side of the property while you handle the personal side separately.
  4. Transitioning to Full Rental Use: Once you move out and rent the entire property, all expenses and income would flow through the LLC. At that point, you wouldn't need to split expenses between personal and rental use anymore.

Level 2
Mar 11, 2025 9:02:27 AM

Thank you very much for this very detailed answer. It was extremely helpful.