LLC For Rental W Negative Cash Flow
I have a spec house that I am turning into a rental due to market conditions.
Rental income will be below my monthly payment: mtg/pmi/ins/tax.
I would like to hold it in a LLC that I have set-up but am unsure of whether I will be able to write off the expenses/ mortgage interest.
since there is no income, would I be able to write it off against personal income?
Or do I have to hold it in my own name, and then would I only be able to write off the mtg interest?
Thanks in advance.
Chris
If it is a rental and you are NOT a real estate professional (REP), you can deduct up to 25k in losses if you actively do things with the property (show it to prospective tenants, handle calls for complaints and things like that) AND your modified AGI is <150k if married filing jointly. Between 100 and 150k, the 25k linit is reduced, eventually to zero as you approach 150k. If you outsource all of that to a third party (ie. a property manager) and you are not a REP, you will not be able to take the losses - they will be suspended until you have rental income or sell the property.
One other thing, is the mortgage in the LLC name or is this a single member LLC? You should have the income/expenses in the same entity for the property.
Quote:On 2007-04-19 00:30, finniganps wrote:
If you outsource all of that to a third party (ie. a property manager) and you are not a REP, you will not be able to take the losses - they will be suspended until you have rental income or sell the property.finniganps,
Not necessarily true. I think you are confusing active participation with material participation.
Only active participation in the management role is required to qualify for the passive loss allowance, but the level of active participation is not specified in the tax code.
Even though the taxpayer uses professional property managers, by reserving SOME key management decisions to himself, he is still actively participating in the rental managment.
Reserving final acceptance of tenants, approving high cost repair or replacement projects, even deciding whether to leave the property under rental management when a tenant vacates is sufficient to be actively participating in the rental management even though a professional property manager handles all the other aspects of day to day rental operations.
If you had said that if would be nearly impossible for a landlord (that only manages his own property) to meet the "material" participation rules for a rental real estate activity if he outsources management to a professional management company, then I would have agreed. But, material participation is only a factor when the taxpayer is trying to attain real estate professional status.
Thanks for the advise.
how do I set this up so I can write off the interest expense , and possibly other expenses(depreciation,mgmt fee,etc..) against personal income..
thanks
Thanks
Your holding period starts on the date title changed hands. In other words, the date the deed was executed.
Incidently, one year of ownership is still in the short term gain window. You must have owned the property one year and one day to qualify for the long term capital gains tax rate.
Example, you purchase a property on March 1, 2006 and sell it on March 1, 2007. You subtract the dates and they are 366 days apart -- one year and a day. You think you are safe and take the long term capital gains tax treatment.
The IRS disagrees and recalculates your capital gains tax using the short term rate because your holding period was only one year, and holding period of one year or less are in the short term window. The IRS says that your purchase date is the first day of your holding period, but the last day of your holding period is the day before your sale. Thus, your holding period is only 365 days and you missed eligibility for the long term capital gains tax treatment by cutting your holding period one day short.
If, instead, you had sold the property on March 2, 2007, then your holding period would have been one year and a day.