LLC for primary residence?

LLC for primary residence?
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#1

Given the 750k Mortgage deduction limit and 10k property tax and SALT limit, does it now make sense to put your primary residence in a passthrough entity like an LLC and rent from the LLC at market rent?


#2

I smell tax evasion.


#3

Don’t you want the $250k/$500k capital gain exclusion on primary residence? They were talking about making that a lot harder to claim (longer holding periods, longer wait before claiming again), but all that is out last I heard.


#4

I think in any state with higher property taxes you would lose the homestead exemption, which could be significant. Depending on how expensive this house is (above the 750,000) limit this would be an undesirable result.


#5

What about recapture (25%) depreciation? Not sure what happened to it, if anything, in the new tax law, but the LLC will have to depreciate the asset(s) and then be taxed at the recapture rate on disposition.

Also, a transaction of the type you describe may fall under arms-length transaction rules and regulations.


#6

Just do a 1031 exchange to your next abode and you should be legal. Check with an accountant first. However, I believe the rent must be market rate… So I have no idea if it would be beneficial to do. Seems like a lot of work and an accounting / record nightmare. Not worth it in my book, however, to each his own.


#7

So you’d be

  • contributing the property to the LLC,
  • transferring complete title and possibly paying associated fees in addition to any potential property tax revaluations which may or may not benefit from valuation increase limitations
  • modifying your mortgage with a probable increase in interest rate

then having the LLC which

  • owns no other property,
  • has no other activities, and
  • of which you are the sole member

lease the property to you as an individual? Which would also result in the excess of your rental payments to the LLC over the LLC’s expenses being taxable to you at ordinary income rates.

Even if this did work (i.e. you were able to get past related party issues, profit motive, sham transaction doctrine, economic substance doctrine, etc.), I’m missing what benefit you’re expecting to get.


#8

You missed tax evasion. That’s the only motive and it’s blatant.

If you wanna take advantage of this, then you need to find someone you can really trust who lives in a substantially similar house nearby, then agree to rent from each other. No LLCs needed. And works with or without the tax changes.


#9

You’re inferring that the LLC wouldn’t be reporting the income though.


#10

[quote=“rlundy, post:4, topic:2382, full:true”]
I think in any state with higher property taxes you would lose the homestead exemption…[/quote]

Any LLC in any state would lose the Homestead Exemption, as well as any other discounts some states offer (senior, veteran, disabled, low-income, etc).


#11

Nope, I’m saying that renting from your own LLC is tax evasion.