House Hacking Single Family... Tax benefits/LLC???

Question

Hey Everyone, I am closing on a 5 bedroom single family home in Boston in two weeks. I plan to house hack with my friend (we will live in 2 of the 5 bedrooms).

My question is - What is the best way to "hold" this property? We currently have 2 owners on the deed/mortgage and was wondering if we should form an LLC or transfer the title into a trust so it is not "personally" owned.

Also, since 3/5 (3 rooms and common spaces - kitchen, living room, bathrooms etc.) of this property will be an investment and rented out, what is best for depreciation/tax benefits etc.?

Any advice is helpful! Thanks!

Jack

Matthew Brill · Answer

You don't need an LLC for a house hack while you are living in it. You will lose your homestead protections.

It is worth hiring a CPA to do the taxes since you will be having to divide expenses (including depreciation) based off of rooms/sqft.

Jack O'Brien · Answer

Thanks!

Aaron Zimmerman · Answer

It would appear based off the facts above that you should take 3/5 of common expenses (utilities, mortgage interest, property taxes, etc) as business expenses. If you have specific repairs for a room you're renting, you can allocate that to be a 100% business deduction. However, if you're doing a repair for your room, it will not be deductible. There's a lot of nuances so it's best to talk with a qualified RE focused CPA.

Basit Siddiqi · Answer

@Jack O'BrienAn LLC is meant to hold business assets.A House-hack is normally an asset that is partially business and partially personal.It appears that the property is currently held as tenants in common. Honestly, your current tax situation is complex as you have a house-hack situation with more than 1 owner.Good luck!

Jack O'Brien · Answer

Awesome, thanks guys!

Colin Williams · Answer

@Jack O'Brien I'm working with Greg O'Brien CPA based in Boston. I found him here on BP. He also has attorneys on his team. They're helping me with asset protection and tax planning. Try contacting them. Gregobriencpa.com

Jaron Walling · Answer

From a lenders prospective this a primary residence. You don't need an LLC if you're just getting into real estate investing. I'd speak with a CPA to handle the complex tax questions. BP has tons of tax professionals and maybe a few will chime in here. Filing your taxes will be more difficult since you have two people on the deed.

Depreciation on a SFH is calculated over 27.5 years but it sounds like you're just renting rooms. I think you'll have to qualify those rooms as a "business expense" based on sqft. and file accordingly. The IRS also has a 20% pass through deduction (based on income level) but I would seek professional help to advantage of anything you can get.

House Hacking Single Family... Tax benefits/LLC???

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