Tax Deductions for Non-Professional

[Bill Bouillon]

Hello BiggerPockets!

I've been consuming as much content from BiggerPockets the past 6+ months to plan for an earlier retirement than I initially thought possible. I plan to ease my way into REI by renting out my current house (with those COVID-interest rates!) when I move into a new home hopefully within the next year or so. I'm curious what experiences people have had taking tax deductions as a non-professional REI. I plan on creating an LLC to put the property into. It's unclear to me how that would affect my W-2 income tax liability though. I recognize the simple answer is talk to a REI friendly CPA (which I plan to do), but I'm curious what others have deducted to less their own tax bill if they just acquire a couple LTRs over time.

[Katie Funk]

Hi Bill. You're right, a CPA would be able to answer your specific tax questions, but I do know that as a single member LLC, the default tax status is disregarded entity. This means that your net profit from your LLC business gets reported on your personal tax return on a Schedule C. There are plenty of tax deductions you will be able to take in your business such as utilities, repairs and maintenance, any advertising for the property, etc. You'll want to be sure to keep good records of your income and expenses to find that net profit at the end of the year. And I would suggest using an accounting software to make things easier. I use Quickbooks Online and haven't had any issues!