House Hacking LLC

[Jacob Holt]

Hi everyone, I recently purchased my first house in Baltimore, MD. It is a 3 bedroom 2 bath single family row home. I currently reside in one bedroom and rent out the other two bedrooms. I want to create a new checking account to keep all my house income expenses separate from personal expenses. I decided to buy the house in my name to qualify for a homestead exemption. My plan is to move out in two years after I qualify for the possible capital gain tax exclusion so then I can either decide to keep it for 3 additional years (or maybe longer, and forgo the exclusion)and move the home into a LLC. I question if there is any benefit to creating a LLC now and opening the bank account in the LLC name. I'd really appreciate any suggestions from anyone that has had a similar experience. Thanks!

[Linda Weygant]

It is generally not recommended to put a house hack situation into an LLC. The issue is that none of the expenses for the portion you live in are deductible on Schedule E. (Property taxes and mortgage interest excepted, but deductible on Schedule A). So essentially you can only put half of the property into the LLC, which might work for tax purposes (sort of), but doesn't work for liability at all since you can't usually put half of a duplex into an LLC as a separate asset.

I do recommend that you keep a separate checking account just for housing expenses because it will really help you come tax time.  For things that apply to both units, just remember that only half of it is deductible.  For things that are bought just for your unit, remember they aren't deductible at all.  Keep track of what's what and you'll be fine.