LLC for husband and wife

General Real Estate Investing
1

my wife-to-be and i were thinking of starting an LLC to hold title to our home.

the home we plan to buy will of course be owner-occupied, as we will live in it.

we will fund the LLC and be the only two members of the entity.

we will each make a member contribution of X. so our opening account will be X+X = a down payment on home - if conventional financing is used.

so, as it stands now, let’s say we make 6000 a month of gross pay per month from our salaries as employees of other companies.

we net, lets say 4500 of that a month.

the LLC would acquire a property.

as members, we would continually fund the LLC with our after tax dollars (from our salaries), thus making the funds pre-tax dollars and using funds to pay mortgage and house hold bills.

we would get the benefit of appreciation, depreciation and tax write-offs in interest as well as excellent asset protection and privacy - as our names would not be in public access system used by any person who walks into the county office to obtain endless information on home owners.

at the end of the day, for tax purposes, our LLC would obviously be losing money, consistently, as the owner-occupied property (that we live in) would be an asset that is strictly a liability (it makes us no cash flow)…unless we rent an accessory apartment, and even then, it will most likely not be a source of cash flow.

does this scenario benefit us? i mean, looking at it, it almost looks like we’d be getting taxed twice - once by being employees of other businesses and again, as members of a business…

but being members of a business, the taxation looks like a home run because all our after tax money, is now pre tax money in the business, thus allowing us to write off utilities, taxes and all other expenses.

and correct me if i’m wrong, but there is no co-mingling here as long as our after tax dollars go to the business and not the other way around [ie, we will not use LLC money to pay our personal expenses such as entertainment or our leisure travel expenses, etc.]

hope someone gets through this and replies. it’s at least interesting.

oh and yes, i trust my wife-to-be whole-heartedly. ;D

2

ah, nothing is ever as simple as at first it would seem.

yes, this will work. but some of your assumptions are incorrect.

the LLC part is fine.

you would, however, NOT be owner/occupiers; you would be renters. the LLC owns the property. You would be paying rent each month and the LLC would effectively be breaking even each month. the LLC would be able to take depreciation, but that passive income would be going to your personal tax return, so you don’t really benefit.

if you don’t pay rent, you’re squatters. If you don’t pay rent, then the LLC does not have a bona fide business purpose. Without a bonafide business purpose, seeing consistent losses, you will be audited. IRS will determine that you are attempting to turn non-deductible expenses (utilities, etc) into deductible losses, thereby evading taxes. tax evasion is a crime, and you go to jail. Once there, however, you will receive “free” rent, meals and utilities, thereby eliminating your tax problems.

good luck.

3

so another words, this is no good.

4

placing your personal residence in a trust with an LLC as beneficiary is a great idea.

Using that LLC as a means to “get around” tax laws is not.

5

Besides what McWagner has told you, also consider homestead exemption.

In Florida that could signify

1- a significant saving in property taxes. The LLC cannot claim homestead, because it rents the property out to you and your wife.

2- In Florida is pretty hard to lose your homestead, that is why all the Enron crooks and others including OJ moved to Florida, but since the LLC can’t claim homestead, then house could be taken away to satisfy debts or liabilities.

3- Generally, depending on what you are trying to acomplish, best option for your OWN home is just own it as Tenants by the entirety (or whatever the term is).

If you have specific reasons as to why you would like to title it any other way, then you need to consult your CPA or Attorney.

6

TCMG,
i am not really sure I understand what you are trying to accomplish by putting your personal residence in an LLC???

As for privacy, you will not achieve this withan LLC. An LLC usually has to disclose the names of its “members” in the articles of organization, thus losing the privacy you mention. I have personally witnessed this at the county courthouse and with online records in various states. I believe it may depend on what the county the property is located in will make public. But believe me, it is public info and can be obtained easily.

mcwagner,
I am always enlightened by you posts … thankyou. I especially enjoyed the humor in obtaining “free rent” meals, etc… - al capone style!

floridainvestor,
I agree with utilizing the homestead exemtionwhere ever you may be. That is state sanctioned asset protection. utilize whatever you can. there are 2 approaches to asset protection: 1) do nothing or 2) do something!

Enron crooks / OJ
Texas has an unlimited homestead exemption like Florida (unless it has changed), but this is not to say that it is the reason why they moved to Florida. A federal judge seized all of the Enron crooks assets including FLP’s, Trusts, Homes, even their kids SUV’s. Federal jurisdiction supersedes state laws including homestead exemptions.
I think OJ just ran out of friends to go golfing with in “public” out in LA.
ps. OJ does not own the home he lives in in Florida. he rents it from a “corporation” along with his car and other amenities. Do you think he knows about asset protection? uh … yes!

7
i am not really sure I understand what you are trying to accomplish by putting your personal residence in an LLC???

Redwing384,

Here is one accomplishment.

Real property usually must be probated when the owner dies. If the owner’s primary residence is owned by an LLC, instead of being titled in his own name, the deceased owner no longer owns real property but instead owns personal property; and, as personal property, the LLC and its assets avoid probate.

Holding title in a properly structured revocable trust also accomplishes the same purpose.

Another accomplishment might be a direct tax benefit. The LLC that rents the property at a fair market rent has that property treated as investment property held for the production of income. As such, all repair and maintenance costs become “deductible” against rental income, as do hazard insurance premiums, PMI, mortgage interest, property taxes, homeowner’s association dues, and special assessments. The LLC can also take a depreciation expense.

Compare this to the owner-occupant homeowner who only gets to deduct property taxes and mortgage interest if he itemizes his tax return. All the other out of pocket costs I noted above, are personal expenses and not deductible for the owner-occupant homeowner who is also denied any depreciation expense.

Just how I see it.

8

Who is signing the promisory note? You would be personally responsible for the note, and personally responsible for paying rent to an LLC that you own…paying yourself but then trying to deduct all expenses…somehow if the IRS came calling to look into this LLC arrangement I think that you would have some explaining to do…me thinks.

9

not necessarily. You can own an LLC that owns a rental property, leased to another LLC that you also own. Plus be a personal guarantor on the mortgage. I have several clients in this boat. They do this to separate the asset (building and land) from the risk (dealing with customers and employees) so that if something untoward happens no one can touch the building.

But the whole idea of converting personal expenses to business expenses makes me a little nervous when you do it with your residence.