Should I put my home's title in an LLC?

Question

I'm looking for my first house and plan on renting out the extra bedroom part of the time - airbnb or traveling medical professionals mainly. Should I consider setting up an LLC and titling the property in its name? The limited liability benefits are appealing but mainly want it for the rental payments. If the mortgage payment and any repairs are paid entirely out of the LLC and the tenant's rent comes to the LLC and not me directly wouldn't this be more tax beneficial? My understanding it that the LLC would be at a deficit and I wouldn't have to claim the thousands extra in rental income and put me into a higher tax bracket.  In the same vein, should I pay a lawyer to draft up an ironclad lease agreement for these types of short term situations or just use a standard form found online??

Wayne Brooks · Answer

No, no, and no. There is No tax advantage to an llc....for taxes the llc is disregarded and everything goes directly to your personal tax return. You would also lose the section 121 exclusion for cap gains when you sell.

Joe E. · Answer

Hi @Danielle Scott, would recommend connecting with @Scott Smith .

Patricia Steiner · Answer

Do you plan on taking advantage of the Homestead Exemption that gives you a discount on property taxes?  If so, you will most likely be required to title in either your personal name or in the name of a family trust.  That's your starting point:

https://comptroller.texas.gov/taxes/property-tax/exemptions/residence-faq.phpAnd, an LLC from a tax situation works differently than it appears you're thinking:  "the LLC owners each pay taxes on their share of the profits on their personal income tax returns (with Schedule E attached). (Source: https://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29675.html#:~:text=The%20IRS%20treats%20co%2Downed,(with%20Schedule%20E%20attached).)

My recommendation would be to step back and figure out what your state allows for homestead exemption titling.  There's no legal way of getting around reporting rental income but it does get offset by that portion of the property expenses.  Do your homework...there are plenty of online sources to help you - including the good old IRS.

Hope this helps.

Greg H. · Answer

@Jon Shoop

That was my point. While it does say that there is no precedent in the 40+ years of TAR promulgating a lease of them exercising their right to protect it

Greg H. · Answer

You do not have to be a Realtor to use the TAR forms.  A Realtor can give it to you.  Additionally, there is absolutely no precedent by a court to invalidate a TAR lease.  A TAR lease is about as good as it gets

Trevor Church · Answer

What about keeping the title to the property in a trust? No tax adv. that I know of, but may be liability shield, no?

Jon Shoop · Answer

"In the same vein, should I pay a lawyer to draft up an ironclad lease agreement for these types of short term situations or just use a standard form found online??"

Don't use a standard form online. That opens you up to potential claims and situations that you shouldn't or wouldn't be in if you had been advised by a professional and set up with a better agreement. Use a property management company that uses your state's Realtors residential lease agreement, to do the lease out process if nothing else. It'll be cheaper than a lawyer and still give you iron clad lease agreements and terms.

I know in Texas you have to be a registered realtor in order to use the Texas Realtors lease agreement.

It might be worth your while just to have a legit PM company manage it all for you, so you can sit back and collect a nice check each month without doing much and being able to pass most liability off on the PM company.

Mike McCarthy · Answer

@Trevor Church with a renter in your own house, a trust or LLC isn’t going to help you much. If the renter wants to sue you, they are going to know who you are and your general financial situation.

Plus, there’s not much to say that you aren’t personally liable for whatever might happen in your house.

If you have other factors to consider, maybe a trust is worthwhile... but not for what you’ve laid out here. Just make sure you have good insurance and maybe an umbrella policy.

Michael H. · Answer

@Danielle Scott short answer, No. Find something else to do

Vijaianand Thirunageswaram · Answer

@Danielle Scott We had discussed in other post, many new investors worry about these things before even finding the deal or spending more time finding it. These logistics will fall in place automatically once you have a deal and contract in place.

There are various factors involved in deciding whether you need to have LLC or not. First, you need to figure out whether you need financing,  then LLC won't work because it will commercial loan. if you need to use conventional lending, you better buy from your name to make use of the low interest rates. You can change the title to LLC later and few lender will openly allow it like Trustmark bank. They do it for you. You don't have to worry about due clause which many lenders do even care. I have done it for my investors many times and nothing happened. As long you pay on time, they don't don't care. Secondly are you going to take homestead or not. In that case, you lose that if you title to the LLC because it's considered investment. LLC is good if you have work in medical industry and exposure to liability in your field and want to protect your asset. Otherwise you can continue to hold in your name and take umbrella policy. I don't have LLC but have umbrella policy which covers all my properties.  Hope this helps you.

As per which agreement to use, again, get the deal first and worry about these things. Don't jump to step 10 when you are not even ready to cross Step 1. There are lots of agreement available online from BP. Do not worry about it now and just work on making the deal happen.

Should I put my home's title in an LLC?

Most Popular Reply