Taxes on Rental Income

[Alexander Spira]

Hi Everybody. Great news I closed on my first single family house. We hope to get the renovations started up next week. 

The question is I live in NY and the property is in Baltimore, for tax purposes is it better to open up the LLC for the rehab costs and future rental income in Baltimore or NY. We all have to pay taxes but we don't need to pay them twice or more then we have to. Any advice as to where I should open up the LLC.

Thanks to all in advance.

[Ned Carey]

@Alexander Spira First of all putting a property in an LLC will have zero impact on your taxes.

Choosing to have the LLC taxed as a corporation, either C or S, could affect your taxes. Generally an electing to tax as an S corp has no advantage for rentals and a C corp is generally considered horrible way to own real estate. Talk to a competent CPA familiar with real estate to confirm and explain. If he or she does not know why I said what I said in the two sentences ago, you have the wrong CPA.

The reason for an LLC is generally liability protection, however this is not a cure all for liability by any means. An LLC will cost you money to maintain (an additional tax return, annual fees to the state etc.) If you do business in MD and in most states you will have to register your out of state LLC anyway. So save the hassle and cost and just open an LLC where you do business. A MD personal Property return (essentially an LLCs tax return) will cost you $300 a year.

Borrowing in an LLC will require a commercial loan. This can be harder to get but also likely to cost a little more and require larger down payments.

Given the disadvantages to an LLC, I still choose to title property in an LLC vs my own name. My guess is 99% of attorneys do the same for their own properties.

PS don't ask your accountant for legal advice and don't ask your attorney for accounting advice. 

I am not an attorney nor CPA the above is not to be considered legal or accounting advice for your specific situation, only  my laypersons understanding of the law.