My first Real Estate investment is planned to be a duplex in Ohio. I will live in one side and rent out the other to allow me to get my feet wet. In doing so can I receive the tax benefits as if it were a single family rental or other REI?
You would treat the property as two separate units even though both units may be under the same roof. The residence unit will be treated as your primary residence. The rental unit is treated as an investment property.
You split the home mortgage interest and property taxes between the two units. The most common allocation method prorates according to square footage. The share of mortgage interest and property taxes allocated to the residence unit is deducted on Schedule A if you itemize. The proportionate share allocated to the rental unit is deducted on Schedule E.
For the residence unit, your homeowner’s insurance premium, repair costs, landscaping and grounds maintenance are all personal expenses and not deductible. If these expenses are incurred for your rental unit, deduct the costs on Schedule E. Same for utilties such as water/sewer, electric, cable TV – non-deductible personal expenses for your residence unit, Schedule E deductions for your rental unit.
Can the whole property be depreciated?
Depreciation works essentially the same way and the other expenses discussed above. First you have to figure out the amount you paid for the land and the amount you paid for the structure. Use the tax assessor’s value to allocate your purchase price between land and building. For example, let’s say the tax assessor says the land has a tax value of $10K and the structure has a tax value of $40K. Now, use an 80/20 ratio against your purchase price to figure out the respective cost bases for the land and building. If your purchase price is $100K, then the cost basis for the building is $80K.
This $80K bought your primary residence and the rental unit. Assuming both units are essentially the same size, then half of the building cost ($40K) will be allocated to the rental unit and recovered through depreciation over the next 27.5 years. You can not depreciate land, and you can not depreciate your primary residence.
Lastly, can the residence be in the name of the LLC instead of mine?
Yes, it can, but it is not recommended. BLL has some comments specifically addressing this question. He says that putting your primary residence in an LLC is the last thing you want to do. Search the archives for BLL’s many posts on this and other entity structure questions.