LLC for Renovation Costs

[Landon Sheveland]

Hello,

I am recently get involved with a fix and flip (my first one). The property is in my name as we plan to live there while we renovate. I was wondering if there would be any advantage creating a LLC or business to pay for the renovation costs. Or would this only be beneficial if the house was in the businesses name. Trying to find the most tax efficient way to go about this. Thank you for any responses.

[Kevin Sobilo]

@Landon Sheveland, I don't see how that would help you and it could hurt you.

1. A single member LLC is by definition a disregarded entity by the IRS. So, any investments are on your personal taxes the same as if the property is owned by you personally. So, no difference in taxes there.

2. Its NOT an investment! You are rehabbing your primary residence not an investment. So, it is what it is. You may wish to think about it as an investment and you may plan for it to be an investment in the future, but until it is an investment it ISN'T an investment property.

3. Owning the property in an LLC and living in it as your primary residence would negate the value of the LLC. The LLC is there to protect you from liability when doing business by SEPARATING your business from your personal. When you are living in a property owned by the LLC you are mixing those things giving anyone who sues you a good case to "break the corporate veil" and sue you personally thereby negating any protection the LLC was offering you.

4. The most tax efficient way to fix and flip a home you plan to live in would be to live in the home for 2 years as your primary residence. When selling a primary residence you have lived in 2 of the previous 5 years you get a tax exception on profits of $250k for a single person and $500k for a married couple filing jointly. So, you could potentially avoid paying income tax on all profits!