May 26th, 2010
Run rent property through personal or as a business?
Does anyone have advice on the best way to treat income and expenses on a rental property. Wondering if it’s best to collect rent and pay expenses through an LLC or just personally. What are the tax consequences of being taxed like a corporation (1120-A) versus just putting everything on my personal (1040 Schedule E)
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Filed under: Rent Property
An LLC is a pass-through entity so you don’t pay double taxes, but if your LLC is sued, they can’t get at your personal assets… most likely.
The benefit on your personal return if the corp runs breakeven or loss limits.
The benefit on your 1040 return if the benefit on your personal return so you have to pay even if you have forms you are.
It’s a good question. I would suggest consulting an attorney who is also knowledgeable in real estate. You may not need to do anything right away if you only have one rental property. You would simply file taxes in the normal way and submit a schedule E which allows you to claim all expenses related to the rental property. You will also claim depreciation and disclose all rental income.
Make sure that your insurance is up-to-date. The insurance company needs to know that the property is occupied by a tenant. Your agent will advise you on the kind of protection you need.
I would run LLC since you personally protected against law suits. Most probably LLC will be single member, therefore, willl be taxed at federal level as self-employed people(schedule C). If your profit is more than $400, you’ll pay self-employed taxes 15.3% after subtracting 7.5% from your net income. Half of self-employed tax is a deduction from your gross income. If not LLC then it will be 1040 sch E. Many landlords usually have a loss from rental, though they have a positive cash flow. Anyway, I would have LLC if it was more than one apartment or house