Level 3

Question

Residence in LLC

Forum|Forum|2 years ago
February 14, 2024
5 replies
15 views

Client created the LLC (single member) for their rental property. That's an easy schedule E, no problem. Now they've put their own house in the LLC because they want to deduct all the expenses like insurance, repairs, plus mortgage interest and taxes, so they starting paying rent to the LLC. I think this is nuts.

As I see it they have none of those deductions for the residence (unless they take taxes and interest on sch A) and they are generating taxable income to their own LLC from their own money plus losing the 121 exclusion if they sell.

Am I missing something?

This topic has been closed for replies.

IRonMaN

Level 15

"I think this is nuts."

Yeah, you are right. Their plan is nuts and for them to come up with the plan they gotta be a little nuts. Have you seriously thought about sending them somewhere else to drive another preparer nuts?

Slava Ukraini!

T

Taxtime3

Level 5

Good lord. That's all I can say. A revocable living trust would make more sense.

BobKamman

Level 15

How is cheating with a revocable living trust different from cheating with an LLC?

But what if they put their house into an irrevocable trust, for which they are not beneficiaries? Why use a trust, why not just give it to the kids? And then hope the kids don't evict them. Or run over a wealthy lawyer and get sued for all they're worth, including Mom and Dad's house.

T

Taxtime3

Level 5

I was only thinking from an estate planning perspective but not all the rental whoha. Sorry I did not clarify and you could not read my mind.

Just-Lisa-Now-

Intuit Community Champion

TikTok strikes again!

So many bogus tax scam videos out there, people need to stop using it for real information and use it for entertainment only.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

abctax55

Level 15

paging @BobKamman 😉

HumanKind... Be Both

IRonMaN

Level 15

Bob needs a little break today.

Slava Ukraini!

Skylane

Intuit Community Champion

If they actually did re-title the house into the same LLC as their rental property, they should have a conversation with their insurance company or agent.

Changing the ownership of the house into the LLC would require a change to their homeowners policy..... Their homeowner policy would have been written with their individual names as Named Insured is likely worthless... (that means if the place burns down, they could be SOL)...

Because the LLC contains multiple properties it would not be eligible for most HO insurance companies.

If at first you don’t succeed…..find a workaround

G

GeorgeK76Author

Level 3

Thanks to you and everyone for confirming my thoughts. Let me summarize what I believe gets reported:

1. rental income and expenses for the property rented to someone else is a sch E entry.

2. The residence also goes on E (only to split the taxes and mtg interest) with zero depreciation and no deductible losses. 100% personal use. Or just report half of these on column 1?

He tells me he's paying rent to the LLC for his residence, essentially paying himself. Can I ignore this entirely or do I need to show it somewhere, like a sch C? 2nd E entry? It's not FMV.

And yes he needs to speak with a lawyer about undoing this mess but I need to file this for 2023 first.

Thanks for any help guys.

sjrcpa

Level 15

If it's a SMLLC disregarded for tax purposes, the personal residence remains a personal residence for tax purposes. No Schedule E for it.

Deductions for RE tax and mortgage interest go on Schedule A subject to the usual limits.

The more I know the more I don’t know.

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