STR Tax Loophole in a partner LLC

[John Park]

Hi. My brother and I are 50/50 business partners in our real estate journey. We are closing on a couple properties that we tend to use for short term rentals in order to take advantage of the str tax loophole to offset our W2 income tax. 

My main question is if we start transferring the deed over to our LLC in which we are 50/50 partners, how does it work when it comes time to deduct the bonus depreciation against our W2? Do we each get 50% of the write off or does the entire write off go to the one that originally bought the property in their own name? Thank you and appreciate any advice possible.

[Greg Scott]

There is a lot to unpack here.

First, it is worth noting that with a W2 job you may or you may not be able to reduce your W2 taxes with bonus depreciation.  Talk with your CPA.

If a property is owned in a LLC, how profits and losses (including depreciation) are split will depend on your operating agreement. The online legal companies may or may not have set it up correctly. I'd read yours carefully and if there are any questions, talk with an attorney.

Finally, since you mentioned you had one person buy the property, you should check with your attorney about how you are holding title vs the mortgage. Theoretically, having the LLC own the property and one of its members be responsible for the note is co-mingling of interests so could impact the integrity of the LLC in a lawsuit. I'd be sure to carry excellent insurance.