Running My Furnished House Hack as a Business

[Daniel Hoop]

Greetings! 

Looking for some feedback on my situation: I am getting ready to close on a 4-bedroom town home that I will live in (house hack) as my primary residence. I  plan to furnish the common areas and 3 remaining bedrooms which I will rent by the room, on a mid- to long-term lease.

I'm interested in the idea of setting up a business (LLC) to essentially manage the rental aspect. The LLC would collect security deposits and rents. I am wondering, however, what kind of expenses could be considered business expenses while I'm living in the property. Are expenses related to furnishing the property considered start-up costs for the business? Can the LLC pay for capital expenditures and/or utilities for the property? (I assume the actual mortgage should be paid from my personal account because the loan is for a primary residence?)

By doing this, I'm hoping to build business credit/history, separate expenses, and eventually scale the business to manage future investment properties (likely furnished rentals). Is this a sound line of thinking? I'm also curious if I could transfer the property to the LLC once I move out. In this case, do I need to refinance before?

I welcome all feedback, thanks in advance!

[Luis Silva]

Taxes can be rather nuanced, so I would recommend running all these questions by your accountant/CPA. But couple notes.. 

- generally speaking, start up expenses that are required to run your business are typically tax deductible. With that said, since you live in the home, perhaps, you can only deduct a portion? (ie. if you occupy 25% of the home, maybe you can only deduct 75% of the cost). Would be interested in what an accountant says about this. 

- Regarding utilities, it may work similar to a home office deduction for a small business (similar to what I described above - basically you determine the sq ft of the home being used for business, and that portion is tax deductible. Again, I would check with a CPA

- Regarding LLC... you do not need to refinance to deed the property into an LLC. Just work with a deed service and they can handle this for you for a couple hundred bucks. Side note, since this is your personal loan, mortgage notes generally have a "due on sale clause". In short, this basically means that if you transfer/sell/assign the property, the lender has the ability to call the note due. This is extremely rare, but definitely something to be aware of.