Spec House ( Taxes: LLC vs. Individual)

[Zack Hawkins]

We are going to be buying property and building a spec home shortly and need to understand the pros and cons of doing this deal through an LLC vs. as individuals, from a tax perspective. Is there a difference?

I already own an LLC (residential contractor) and understand the liability benefits of running this deal through the LLC.

I'm only asking about the differences from a business perspective (taxes, showing the income as business income vs. individual income, etc.). 

Pros, cons, anything I should know that I might not know to ask?  

Thanks all!

[Bryan Martin]

Running the project through an LLC gives you tax flexibility, such as choosing how the income is taxed (sole proprietorship, S-Corp, etc.), and makes it easier to track and deduct business expenses. However, it adds complexity with more paperwork and potential self-employment taxes on all the income.

Doing it as an individual is simpler, with everything going on your personal tax return, and you might benefit from the home sale exclusion if you end up living in the property for a few years. But, you could face limits on deductions and miss out on some tax planning opportunities if you do that as well.

If this is a one-time deal, doing it as an individual might be easier. But if you plan on doing more spec homes, the LLC would likely offer more benefits through legal protections (obviously speak to your attorney about this) and potentially tax savings if you look to file as a S-Corp.

[Ashish Acharya]

Using your LLC will NOT give you more tax deductions. However, if this is a non-rental activity and you plan to do it more often, you'll face self-employment tax.

Given that you already have an LLC and understand the liability perks, using the LLC might be the smarter move, especially if you plan to do more projects down the road. If you are already an S-corporation, you can run this activity there if your legal team does not have any objections.