sam
Lieutenant
Posts: 123
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Post by sam on Jun 12, 2021 22:01:08 GMT
I am thinking about moving from my current place to buy something bigger and more updated. My current residence has a very good potential gains in future (desirable location) and rental goes very fast and this has been going on for last 15 years and it has nothing to do with pandemic or current real estate boom.
I have lived at my current residence for more than 5 years and my potential gains (less than 250/500K single/married) will be tax free. This part I understood and but in order to lock in gain one has to sell property.
For rental property in general it is a good idea to keep ownership under LLC to protect from liability. But rental property requires depreciation year after year.
Question: If I form a LLC (I will be owner)., can I SELL my property to LLC or I can only transfer my title to LLC? If I can sell to my own LLC then I can lock in free capital gain and take advantage of depreciation with rental income. Is it allowed or I am kind of day dreaming! If this is allowed what should be the SALE price, appraisal by a pro or county tax assessment value will be the sale price.
Real estate depreciation and free capital gain from personal residence are opposite side of coin.
One of advantage of rental property depreciation acts as expense against rental income until value goes to ZERO and at that time entire gains are taxable and I think real estate capital gains are 25% at Federal level. Currently in my case half of my property value is free now because of 2 out of 5 years personal primary residence so I will be losing those potential depreciation value if I just rent as I being owner.
I am sure I am NOT first one who is facing this type of situation.
Any suggestions!
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sam
Lieutenant
Posts: 123
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Post by sam on Jun 14, 2021 20:14:21 GMT
Any one, or at least any suggestion who/where can I ask this question. I don't have a tax professional.
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Post by xray on Jun 15, 2021 17:12:51 GMT
Good Morning Sam....
Interesting proposition to consider. However, always however's, this can be a very tricky problem and a "Tax professional" is the best [only] way for this particular answer. A incorrect answer to your question [which may be what we want to hear] could have some dire consequences [going forward]. The reason you may not be getting a answer back to your interesting question is that "we don't know"....
Some of us have tax professionals and we could get "many" different answers if they are not privy [ a Perry Mason type vs the norm every day type] to this particular law that governs this....
Some of us may pursue this question with our tax pro's since the CapGain could be very profitable [in the short term]....
Live Long and Prosper....
Eddie....
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Post by FD1000 on Jun 15, 2021 18:20:07 GMT
Sam, too many ifs and twists beyond my knowledge. I looked at RE(real estate) for years and came to the conclusion it's not for me because: 1) It's a business and I don't want to own/report/deal with it 2) I don't want to deal with tenants, lawyers, CPAs, filing, contracts, evictions and unexpected calls. 3) I already own one home because I must live in a place. 4) I don't believe in investing in a narrow category but if you think RE is a good one then invest some of your money in RE 5) If I don't like my mutual funds, I sell them within seconds, it's easy, fast and clean. My mutual funds never call me or talk back to me  Basically, I like simple, easy, no worry investment style. I would just sell and buy a new house. It worked pretty well for me. Remember, all can go well until you get one tenant from hell. |
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Post by Chahta on Jun 30, 2021 12:03:33 GMT
I (and other family members) have had residential and commercial rental properties. No one ever mentioned an LLC for liability. Maybe if you had a whole lot of property it may be worth it.
If you have enough a management company is worth using.
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Post by jongaltiii on Jul 1, 2021 0:05:00 GMT
The best advice is to seek the advice from a tax professional. Ok, that said… here’s a couple of things you should consider:
>>LLC for liability protection? Nah. Probably not that helpful unless you have multiple properties.
>>Passive income in an LLC means reporting in sched E
>>If your real reason to Sell to LLC (assuming you have no mortgage) - is tax savings… you should be mindful of the “economic substance rule section 7701” … they really require you to have a legitimate reason other than just tax savings.
State tax laws come into play as well. Best to speak with a tax profess.
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Post by Mustang on Jul 1, 2021 9:24:46 GMT
I had a rental house once. I had moved out of state and thought it would be a nice place to return to. After a couple of years the renters moved out on the midnight express with no notice. The damage to the house took several thousand dollars to repair just to get it to a place where I could sell it. I have no desire to ever do that again.
Rental proper is a business. You have to keep books like any other business. You have to record all revenues and expenses. Depreciation is just a bookkeeping entry. There are several method of calculating depreciation but the easiest is straight line depreciation which is cost minus residual value divided by useful life. The bookkeeping entry is the same every year.
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