Hi everyone. I have been enjoying reading through threads for some time and would appreciate your advice.
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? Can the whole property be depreciated? Lastly, can the residence be in the name of the LLC instead of mine?
I appreciate the advice. Ben
Innes177 - it seems that the approach you are taking (buyin a duplex, living in one side and renting out the other) is one of the approaches a number of successful investors recommend in this board.
In terms of tax benefits I know you can take them the same way as if it was a SFH. Not sure about depreciation though - for sure you can depreciate the side that you are renting. I don’t think you can depreciate the side you are living. Someone else can probably give you a definitive answer on this.
The property can be in the LLC name. However, not sure why you would want to do it. You may want to check in the Asset Protection, Legal forum. There are a lot of good discussion around this there.
Good luck!
Good idea, Innes177.
Are you renting now? How did you manage to save up for a downpayment? Are you using any special first homebuyer program for your duplex purchase?
Let us know your plan and timetable for buying. Then you can be an inspiration to someone else. Tell us how you are going to buy the duplex. Everyone will be happy to give you advice. Good luck!
Furnishedowner
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.