LLC as a tax saving strategy??


First let me say, WOW, what a website. I’ve been browsing for a few days, this is a very nice forum!

First, a little background. I currently own a 5 unit building and a seasonal (ski shack) as my rental “portfoilio”. Not much in comaprison to many on this site, but it’s a start.

Anyway, here’s my situation. Most of my (joint) Income is paid via w-2’s. It’s totally exposed to the taxman. For 2007, it was a tad over $480,000. At that level I cannot take losses on a Schedule E and my itemized deductions are very limited. Actually, I can take rental losses, they just can’t offset other income…

I would like to purchase some more investment RE, especially now as there seem to be many, many opportunities, so that leads me to this question…

Are there tax advantages for purchasing via a LLC? Can I use the depreciation and (any other) losses.

Is there a better way? :help

I’m just trying to save/minimize my tax liability while accumulating some more properties.

I’m in PA.

Thanks in Advance!

The only tax advantage of an LLC over other entities is that it can be taxed as sole proprietor, partnership, or corporation. In your case, the pass through entities won’t be any different than your current situation. If your RE business is a paper loss with positive cash flow, you can invest via a c-corp and use the cash to fund an employee benefit plan. The corporation gets a tax deduction and you are not taxed on the benefits.

I would suggest you seek out a specialized RE attorney or CPA who is familiar with your state.

When seeking signicant and critical information such as this, my suggestion is to go STRAIGTH to the source!

Certainly doesn’t hurt to get others opinions but never base your financials, corporation set up, or tax strategies based on another person’s because everyone’s fiancial situation is different and one might be able to take advanatge of a tax strategy that the other can’t, etc.

You might also want to check out and These are both sites of Diane Kennedy, CPA, who is very speacialized in RE tax strategies.

Definitely do something ASAP to change the way you are paying taxes! :banghead

You will be glad you did!!!

No advice is better than this. Burn it into your memory.

“tax advantages” to using an LLC are almost zero. There are no deductions available to entities that are not also available to most individuals.

Business expenses are always deductible on Sch C or E.

Depreciation is the same.

With passthru taxation, the taxes are the same.

A C-corporation (or LLC taxed as a C-corp) may have a lower income tax rate, but getting cash out of the corporation triggers additional taxes (so-called “double” taxation). Corporations may be able to extend some additional benefits (medical reimbursement comes to mind) to employees and directors above what is available to individuals (itemized medical is subject to a 7.5% AGI floor).

But for most folks, the radio commercials lie: there are not “huge” tax savings to be realized from incorporating.

how do you deduct business expenses if you dont have a business set up (LLC, C corp?)

I guess im confused as to how you prove/show that you have a business?

For example the house I am looking to purchase:
I will be buying materials, contractors, marketing signs, etc…

Do I just claim this as an expense of owning the property?

how do you deduct business expenses if you dont have a business set up (LLC, C corp?)

Uh…on the appropriate tax form.

If it’s a rental, then materials, contractors are repairs or improvements.
Signs are advertising. All this goes on the Sch E. keep a mileage log.

If it’s a flip, then materials, contractors are COGS along with the purchase price of the house. Signs are still advertising. All this goes on the Sch C. keep a mileage log.

all business expenses are always deductible. keep a mileage log.

It’s an income tax…not a revenue tax. Revenues minus expenses = income.