My husband and I unable to bear children So we bought a second home. Any ideas on how to maximize our tax benefits is appreciated. We have a CPA and a referral to a financial advisor. But, I know having C-corps and LLC’s cost $$$. We are not sure we need to go that route.
You shoulda got a kitten instead! LOL.
A lot of this is going to depend on your household income level. Tax-wise it may not be in your best interest to put your properties in LLC/C-corp. If you make below a certain income level, you can deduct any real estate investment losses (to in clude “paper losses”) from your active income that you receive from your every-day jobs.
you do not mention what you plan to do with the house. if you plan to use it for your own use, then you can deduct interest paid on mortgage and taxes just like your reg. primary residence.
if you plan to rent it full time, then you will do a SchE of 1040 for rental income; this income will be off-set by interest paid, taxes and other expenses. Also, you will be able to take depreciation which will probably result in your showing a “paper loss”. This loss (up to $25k)is fully deductible if your income (“modified” adjust gross income) is less than $100k. This write-off is phased out (unofrtunately)on a linear scale going to $150k in income. However, this loss is suspend and can be used in a future years if your income is lower or you sell the property. Susupend losses are tricky to handle and I would advise consulting an EA (enrolled agent) to help you if you have that situation. An EA is the tax equivalent of a CPA.
if you rent it part-time, then the tax rules become very complex and you may limit your ability to write-off expenses against income. Basically the rule get complex in this situation as the IRS is trying to prevnt people for renting property for a few weeks a year and then claiming full expenses and depreciation deductions.
as for an LLC, it is nice to have, but mostly like it will be a disregarded tax entity. Depending on where you live, the expense may not be worth it, but it does provide liability protection. Corp. are much more complex and probably not worth it for one property unless your financial situation dictates it.