Rental license in Philadelphia, PA

[Ana Garrido]

Hi all,

After lots of reading and listening ALL the BP podcasts and struggle with the bank approval process, my husband and bought a duplex! Then we will live in one unit, have a home office and will build a shed for our start-up business in handyman services (an LLC treated as S-Corp) So we get W2s from it. When I enter the rental license's site it requires a commercial license. So that confuses me. As our accountant recommended not to take any payment in our name as we would have to pay self- employee taxes. But isn't the rental income non taxable? Hence, I am wondering about pulling a rental license in our name or the LLC?

Please advise, and many thanks in advance.

[Ethan Giller]

Congratulations on your purchase! A few things:

1) Rental income is generally taxable unless it's in a sheltered investment vehicle like a self-directed IRA. This is rare.

2) Whether you have the income coming in through an LLC or to you personally generally does not have tax implications (assuming the LLC is structured as a partnership or a sole-member), that is primarily for legal liability considerations. There are some exceptions and you should check with your accountant, but as a general rule it's applicable.

3) The license that Philadelphia is asking you for is a Commercial Activity License, which is required regardless of the entity used to purchase the real estate (even if it's in your personal name). You register for a Commercial Activity License, which is Philadelphia-specific, and that number allows you to apply for a Rental License.

I'd encourage you to look into the rental regulations in Philly because you generally also need a Rental Suitability Certificate, and you may also need a Lead Safe Certificate if renting to children under the age of 7, and you want to make sure that your duplex is legally zoned for 2 units and for the commercial use that you're planning.