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What are the tax implications of this? If you buy a house yourself under your own name you get an itemized tax deduction as opposed to buying one with a business like below.

An LLC is a pass through corporation which means all expenses are passed through to your personal income tax return. Theoretically, you could deduct the property tax, deduct the mortgage as a business expense, and then rent it to yourself for something like 150.00 a month. So, assuming a 1600/month mortgage you basically lose 1450 a month on your business, which passes through to your personal income tax return. Add in depreciation of appliances, and any othe repairs are written off and it seems like it would be better to just buy a house with an LLC and rent it to yourself at a huge loss.

Not to mention any repairs, all property insurance can be written off as a business expense.

the IRS does not look kindly on businesses that are in the business of losing money and renting property at 1/10th of market value to the proprietor.

Crazytree said:

<< the IRS does not look kindly on businesses that are in the business of losing money and renting property at 1/10th of market value to the proprietor. >>



What if you don't rent it out and just say you couldn't get it rented out but you're living in it?

CrazyDe said:

<< Crazytree said:

<< the IRS does not look kindly on businesses that are in the business of losing money and renting property at 1/10th of market value to the proprietor. >>



What if you don't rent it out and just say you couldn't get it rented out but you're living in it?
>>


Whoa cowboy. Isn't that a little, what's the word, lying?

ctujackbauer said:

<< CrazyDe said:

<< Crazytree said:

<< the IRS does not look kindly on businesses that are in the business of losing money and renting property at 1/10th of market value to the proprietor. >>



What if you don't rent it out and just say you couldn't get it rented out but you're living in it?
>>


Whoa cowboy. Isn't that a little, what's the word, lying?
>>



Yeah, it's lying, so? I'm just wondering if it would work. The LLC thread just sparked a thought in my head...

this is a great idea if you want to reduce your monthly living expenses to ZERO. well... close to zero... you'll probably still need to buy stamps, stationary and candy bars.

why not open a "real" eBay business selling worthless crap that ppl will buy anyway. that way your property will become your "home office" and therefore legitimately write-offable under the limited lifetime corporation. so would your computer equipment. although i read somewhere your LLC has to make like atleast $40k or $75/year in profits to be considered an LLC

and it'd be a pain to get audited

another day another eBay 52-week high, no make that all time high-the bubble is back!!

XFreebie said:

<< why not open a "real" eBay business selling worthless crap that ppl will buy anyway. that way your property will become your "home office" and therefore legitimately write-offable under the limited lifetime corporation. so would your computer equipment. although i read somewhere your LLC has to make like atleast $40k or $75/year in profits to be considered an LLC

and it'd be a pain to get audited

another day another eBay 52-week high, no make that all time high-the bubble is back!!
>>



Actually I have a "real" eBay business selling real crap that people do buy. I write off 1 room in my house and my whole basement as it's a storage facility. I'd write off the whole thing but i can't. Since I work for a startup I don't get benefits so I also write off my medical and dental insurance that I buy for myself as well as all miles I drive and also almost every trip I take. YOu also don't have to make any money to be considered an LLC, in fact it's ideal for real estate investment becuase if you don't make money the first few years it gets deducted from your personal tax return.

I was just thinking if it would have been smarter to set up a corporation when I bought my house, and then just lived in it and taken more deductions...

CrazyDe I just sent your IP address to the IRS run run run

How can you have a loss if you are able to pay for the mortgage? The $1600 a month has to go into the LLC as income in order for the LLC to able to pay the mortgage (or else the LLC's first check would bounce) and it would be a wash ($1600 into the LLC then $1600 out). The only other way you'd have to make a lump sum (AFTER tax money) deposit into the LLC as starting capital then take losses on that, but that get very complex b/c there are so many things to consider as well as the initial capital would at some point run out.

Sorry.. I just read your last post and it's quite different than your first post. I see now that you are trying to offset your earnings with your mortgage payment through a LLC which is similar to taking a home office deduction. I believe the IRS tends to be very strict in cases like this. I bet artists that live in artist lofts would probably have first hand experience with that.

similar thread about 2 friends renting out property to each other

http://www.fatwallet.com/forums/arcmessageview.cfm?catid=52&threadid=154293&highlight_key=y

This sort of scheme will work until you get caught by the IRS.

Crazytree said:

<< this is a great idea if you want to reduce your monthly living expenses to ZERO. well... close to zero... you'll probably still need to buy stamps, stationary and candy bars. >>



You forgot cigarettes, soap-on-a-roap...

Whether or not this 'scheme' is legal or not... are you sure this 'scheme' is financially prudent? It depends on how much tax this will save you but considering the hot RE market, and depending on when you sell your 'residence' it might be possible that you end up paying more taxes in the long run in that setup.

docido said:

<< Whether or not this 'scheme' is legal or not... are you sure this 'scheme' is financially prudent? It depends on how much tax this will save you but considering the hot RE market, and depending on when you sell your 'residence' it might be possible that you end up paying more taxes in the long run in that setup. >>



That's what I wanted out of the thread...both if it would be feasible and what the financial benefits would be. As in would the financial benefits outweigh the benefits of an itemized interest deduction.

Who is your favorite character on OZ? Personally I liked Adebeisi a lot.

Crazytree said:

<< Who is your favorite character on OZ? Personally I liked Adebeisi a lot. >>



Who's your favorite little rascal? Alfalfa or SPANKY?

darla

After reading the other thread I've come to the conclusion that it must be shown that you intended to make a profit on the business in order for it to not be tax evasion. Well, in that case you could argue that you bought the house with the intention to sell it later at a profit as it was in a good area and houses in the market keep appreciating. So, buying up properties and losing money on them(not even trying to rent them out) could be considered a profitable venture if you intend to sell them at a later date.

It would basically be buying a property as an investment, like a stock, holding it, then paying taxes on it when you sell it. I don't think the IRS would do anything to you if you decided you wanted to start a business to buy up a bunch of residential properties and just hold them with the intent to sell 10 years down the road.

That's a great idea... as long as you don't live in the house. Hell every homeowner in America expects to be able to sell their house at a profit later. You're not getting this, are you?

Idea:

Is the house related to a business? For example, you have a tree farm, your LLC builds a house
on the land and hires you to tend to the day-to-day business (and live in the house). Or, variations, such as, your LLC buys several houses and the LLC provides a house for the super (you) to live.

Crazytree said:

<< the IRS does not look kindly on businesses that are in the business of losing money and renting property at 1/10th of market value to the proprietor. >>



I like how somebody modded this down even though it is 100% factual. Idiot.


just buy about 50 old pc's and scatter them across the whole house using all available floorspace, wiring, and that should cover your writeoff when they audit you. You might have to not count the bathroom since pc's dont use them. and throw them on the bed too, if your floorspace is all pc they cant say shiz <img src="i/expressions/face-icon-small-wink.gif"border=0>

Hopefully his city doesn't show up and charge him a use tax on every computer like they do in my city.

You absolutly have to put the $1600.00 into the LLC as income each month. Your mortgage payment of $ 1600.00 is not a 100% expense. Only the interest expense is deductible from that .The remainder would go to your mortgage. But the building or property would be depreciated which would give you a higher deduction if the depreciation is more then 20,000 a year. But the loss you would generate would be disallowed since your basis could theoretically go below zero. The disallowed loss would help you if the building was sold in the future, offsetting the capital gain it would generate.

Not such a smart move, unless you think your going to sue yourself <img src="i/expressions/face-icon-small-smile.gif"border=0>

Okay, some the the OPs original intentions appear to be 'pushing the envelope', but what if it were not 'pushed' so hard???

For example, have the LLC buy the property, rent it to yourself (a separate legal entity) at fair market rates (or only slightly below). The LLC gets to deduct the mortgage interest and depreciate the building. The 'renter' has the income pass through on their personal taxes and does not get the mortgage deduction (well they do through the LLC, but not directly). Would they still get the standard deduction??? Would you have to pay self-employment tax on the 'profits' of the business?

In Texas, an owner gets a homestead exemption for a portion of the proerty tax, that would be lost in the above scenario, and that would be an extra 'cost' that would have to be factored in.

Unless I am missing something (like my mind), this could be a way to get the standard deduction and mortgage deduction and depreciation deduction.

Bollini said:

<< Okay, some the the OPs original intentions appear to be 'pushing the envelope', but what if it were not 'pushed' so hard???

For example, have the LLC buy the property, rent it to yourself (a separate legal entity) at fair market rates (or only slightly below). The LLC gets to deduct the mortgage interest and depreciate the building. The 'renter' has the income pass through on their personal taxes and does not get the mortgage deduction (well they do through the LLC, but not directly). Would they still get the standard deduction??? Would you have to pay self-employment tax on the 'profits' of the business?

In Texas, an owner gets a homestead exemption for a portion of the proerty tax, that would be lost in the above scenario, and that would be an extra 'cost' that would have to be factored in.

Unless I am missing something (like my mind), this could be a way to get the standard deduction and mortgage deduction and depreciation deduction.
>>



The LLC will get to deduct the mortgage interest and mortgage payment (?) but it will be offset by the rental income the net effect being no deductions at all. The LLC can depreciate the building (house) but will have to pay capital gains tax on that depreciation later when he sells the house.

But the main problem I see with this strategy is that once the LLC rents the house to himself it becomes a his rented residence and he therefore must take a home office deduction only on the portion of the residence that is being used for the non LLC business he originally had, which would put him back at square one.



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