How deductibles in an LLC affect personal taxes on 1040

Question

Hi Guys,

I'm planning on incorporating a single-owner real estate holding LLC in Delaware/Nevada this year and am wondering what the tax advantages are of doing so. The LLC will focus exclusively on residential multi-family properties. I will be working a full-time job alongside running the LLC, so I will have two different sources of income.

I understand the LLC serves as a pass-through entity and therefore all distributions are taxed at the individual level on my 1040. Deductibles (mortgage, insurance, D&A, etc.) have already been subtracted from the top-line in the company's Schedule C, so I presume these items cannot be deducted from my personal income on my 1040?

Essentially I am hoping someone can explain in clear language exactly what the tax advantages are to owning this type of LLC.

Thanks!Pat

Eamonn McElroy · Answer

@Pat McQuillan

As already noted by @Ashish Acharya, a single-member LLC taxed as a disregarded entity has no tax advantages, only potential legal advantages.

Depending on your residence and your facts and circumstances. An LLC might be disadvantageous if you're just starting out. e.g. if you're a California resident.

Natalie Kolodij · Answer

Nope.

Literally zero tax difference if you own properties in an LLC vs. your name. Exact same to the IRS.

It's main purpose is legal protection- single person LLC is just ignored come tax time.

Pat McQuillan · Answer

Thanks for all the awesome feedback! I expect the tax benefits are very different if these properties were owned under my own name rather than an LLC?

Ashish Acharya · Answer

@Pat McQuillan,

As you mentioned, it’s an pass through entity, so everything passes to you if it was multi member LLC.

If it is single member LLC, it is disregarded for tax, and your tax return is not going to change at all. You will still report all the activity in schedule E.

You would be in the same tax position with or without LLC( both MM or SM.

There are very rarely any advantages.

Also, there is no schedule C, rentals are reported in schedule E.

How deductibles in an LLC affect personal taxes on 1040

How deductibles in an LLC affect personal taxes on 1040

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