While the primary purpose of this forum is presumably tax advice – and your question specifically mentions “tax benefits”, I would like to offer the among the advantages of using an LLC as an intermediary entity between you, as the owner, and your residents – it does ‘cloak’ or hide your identity from potential snoopy others. As a curious investor, I have looked up individuals’ names under databases to determine how many properties they may own. If they had operated under an intermediary entity between themselves and their residents, their known public ownership would have been greatly reduced or eliminated. One may also consider the use of land trusts to further insure anonymity. Naturally, I whole heartedly recommend and endorse being completely responsible for your property regardless of how the title or the selected entity is used. I mention this as to being less notable to the extent of your holdings.
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You wrote: In your case, all your borrowings on the HELOC were used to acquire rental property. Therefore, the interest paid on the debt could be considered passive activity interest … If treated as passive activity debt, the interest is deductible against the rental income produced by the acquired property. I clicked on your provided link and researched this matter in the IRS Publication 936, “Home Mortgage Interest Deduction.” On the front cover and in numerous other places in the official IRS publication it clearly states any HELOC interest expense paid on items not to “buy, build, or substantially improve your home” meaning your primary residence – this interest is no longer deductible for tax years 2018 and forward. As a CPA, I respectfully disagree to your advice on deducting HELOC interest expense against rental income (or deducting anywhere else on a return) if the purpose of the HELOC debt was not for the “buying, building, or improving” of your primary residence.
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