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Should you own investment property with an LLC?

On Behalf of | Jan 15, 2021 | business litigation |

Real estate limited liability corporations (LLCs) are like other limited liability corporations in that they act as a separate entity with no connection to the personal finances of the owner. These LLCs are popular with real estate investors in Kentucky and the rest of the country. But real estate investors with modest goals should consider a few things before taking the plunge with an LLC.

Income tax implications

Investors in a primary residence can deduct the cost of interest from their personal income taxes. The cost of mortgage insurance may also become a tax deduction for homeowners who purchase homes using a small down payment along with FHA financing. These tax breaks may not be available once LLC business law becomes applicable.

Capital gains

Primary residence investors also enjoy tax-free capital gains if they live in their homes for more than two years before deciding to sell. This benefit covers capital gains of $250,000 or less for a single person.

Liability protection

One clear advantage of real estate LLCs is the personal finances of investors enjoy protection from property liabilities. A person filing for personal injury or other claims will target compensation from the LLC and not the individual.

Write-offs

LLCs allow owners to write off expenses they use in the running of their businesses. Things like traveling expenses, cellphone bills and out-of-town lodging can all become write-offs on taxes. These write-offs are available to personal tax filers but are less suspicious to the IRS if filed by an LLC.

Fundraising

Real estate investors who opt for an LLC will also be able to fund investments by selling shares of their companies. Selling their entire businesses is often an exit strategy for real estate investors who start and grow an LLC with the intent to cash out at a later date.

Real estate investments are a complex area of business law that includes nuances that are likely unfamiliar to everyday people. Individuals interested in real estate may want to seek the services of an attorney.