I’ve decided to get ready to purchase my first home (personal residence/duplex) and am gearing up to use the equity from the first home to purchase my second (duplex also). My question is: Does it even make any sense to start an LLC for my personal residence (i’ll be renting out 1 unit in the DBL) or should i really wait until i start the process of looking for my “investment property”? I would imagine you would get a larger amount of tax and credit benefits for your primary residence. If anyone has any idea how this would work i’m open for suggestions. Thanks!
If you are a tenant, the landlord gets to deduct the cost of all repairs, preventive maintenance, property taxes, hazard insurance, mortgage interest, homeowners association dues, trash collection, snow removal, yard service, utilities if provided by the landlord, private mortgage insurance premiums and then gets to take a depreciation expense, too.
The ower-occupant homeowner only gets to take deductions for property taxes and mortgage interest – and then only if he itemizes on Schedule A.
It seems to me that you come out a little more ahead of you are renting your primary residence from your LLC at a fair market rent. Especially, if your itemized deductions are less than or equal to the standard deduction.
Of course, you give up the capital gains exclusion if you ever decide to sell. On the other hand, you can defer capital gains indefinitely with a 1031 exchange.
1031 exchanges can be very complex - especially if you’ve never used them before (i never have…yet) - in my opinion, from what little i know, 1031 exchanges are good for bagging the big fish.
talk to your CPA about the impact on your taxes if you decide to purchase with LLC and rent (as yourself) from your LLC - while you live there. So you are a member of LLC, but you are an individual who lives in a property that the LLC owns.
you’d really have to keep things on the up and up.
As said in early post… CPA will walk you through this…
Keep in mind that first 250K gain from your personal residence is tax free and 500K if you file joint. This may impact your decision. I would keep my personal residenace personal name and other on LLC. LLC will not benefit from above 250K tax free gain.
This may be good retirement when Soc. Sec. is no more and don’t have to pay tax.