Real Estate LLC, Net Loss/Tax Deductions

[Kyle Houlahan]

Hello everyone, my name is Kyle and I've recently decided to begin investing in real estate. After finding myself on BiggerPockets almost daily reading through posts, I've decided to join!

Long-story short, I've created a single-member LLC with the purpose of investing in real estate and financial securities. I've opened a business bank account and filed all the necessary paperwork with the state.

I currently am pre-approved for a mortgage and have a pending offer on a property that I intend to purchase, rehab, and sell. However, my mortgage application is in my personal name and from what I've read, it's not a good idea to transfer the deed to an LLC after the sale of the property because the bank can call the loan.

My question is, what, if any, expenses are tax deductible through my business? Can I purchase and write-off amounts related to the rehab of the house?

Also, I know that with a single-member LLC, a net loss for the business will reduce your overall taxable income. Is a scenario where my LLC incurs a loss due and reduces my taxes owed on other income realistic as a real estate investor?

Any advice is appreciated. Currently seeking an experienced CPA to help me through this in more detail, but I figured i would post on here to see what you guys thought.

[Ana Garcia]

@Kyle Houlahan

If your property will not be under your LLC's name, then it may not make much sense to have an LLC because it will only result in higher costs (i.e., annual filing fee). Here are some specific answers to your questions:

1. What, if any, expenses are tax deductible through my business? Any expense relating to the business (ex: filing fee), a real estate seminar you attend. Keep in mind that these and other expenses you incur (i.e., mileage, cellphone, 50% of meals, licenses, etc.) would still be deductible on your return if you did not have an LLC.

2. Can I purchase and write-off amounts related to the rehab of the house? Rehab costs would be added to the cost of your house and will be used to determine your profit when you sell the house. This is the case under LLC or your personal name.

3. Is a scenario where my LLC incurs a loss due and reduces my taxes owed on other income realistic as a real estate investor? It depends. If you have a lot of expenses relating to your real estate activity, then you might end up reporting a loss. Again, this loss would apply whether the property was under your name or an LLC.

Hope this info helps! Feel free to call me if you want to chat.

-Ana