Quick question about rental property and LLC...

Discussion in 'The Duck Hunters Forum' started by The Other David, Oct 10, 2019 at 5:14 PM.

  1. The Other David

    The Other David Elite Refuge Member

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    My wife and I have a couple of rental properties. For reasons not clear to me (Tax Law!!! I have a PhD and I can't understand it!!!), we can not take a loss on our taxes, even though we are losing money every year.

    Can/should we form an LLC as a pass-through so we can take advantage of that? Again, there is probably some Tax Law rule that ruins that for us, too.

    Thank you for your quick and easy-to-understand answer!

    David
     
  2. PaulinKansas

    PaulinKansas Elite Refuge Member

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    I thought the purpose of the LLC is to protect your personal assets from a lawsuit. The assets of the LLC (rental properties) are the only thing that can be lost.

    You're probably losing money because of the depreciation expense, it's a non-cash expense.
     
  3. The Other David

    The Other David Elite Refuge Member

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    That, plus it can be used as a pass-through. Profit is treated as income, loss deducted from income.
     
  4. da fowl slayer

    da fowl slayer Elite Refuge Member

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    I don’t think the llc would change it since the actual loss or income passes thru to llc holders
     
  5. WestTN Dux

    WestTN Dux New Member

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    You have entered some of the more complex 1040 tax law that is out there, but I will try and nutshell it for you.

    That will not do it. The problem is rental losses are passive period, no matter how they flow to your return. There is a $25,000 rental loss allowable, but if your income is too high that loss is not allowable(this is what is getting you by my estimation). You generally can only offset (net) passive losses with passive income. So going forward, you may want to go up on rent, lower expenses or buy another rental that you can turn a profit on to net with your loss property.
     
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  6. J.Bennett

    J.Bennett Elite Refuge Member

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    I'm no expert, but I know there are a few here (who will hopefully correct me if I'm wrong), but...

    Yes, profit and loss pass through but I'm fairly certain that the character (passive or not) of the income/loss remains the same for the person that it passes through to. In other words, passive losses would still be passive losses and subject to the same limitations (can only be deducted from passive income).

    Any passive losses from your rentals are "suspended" and carried over until you either start making a profit on them or sell them to an unrelated party.
     
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  7. CA Birdman

    CA Birdman Elite Refuge Member

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    It goes back to the 1986 tax act. Basically that act eliminated using losses from passive activities to offset other income like wages, interest income, dividends and other high tax rate income. I was less than a year out of college when it passed. It is the Section 469 laws and regulations. There was special exemption for real estate and if you actively participated in rental real estate you could up to $25,000 in losses but this phased out between $100,000 and $150,000 on a $2 for $1 basis. If your losses are disallowed, they carry forward until you have income or you dispose of the property in a taxable transaction and then you can claimed the losses carried forward in that year or if you sell one of your rentals for a gain, the suspended losses from your other rental can be used to reduce the net gain taxable.

    And no contributing it to an LLC will not change anything that would allow you to deduct the losses currently and by no means did not contribute it to an LLC and make a S corporation election. It removes all your flexibility and can create unintended tax consequences.
     
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  8. The Other David

    The Other David Elite Refuge Member

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    Guys,

    I think you explained it to me so I can understand. I will re-read the answers and pout some more.

    Thank you!
    David
     
  9. slimm21

    slimm21 Elite Refuge Member

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    Have you considered asking your accountant?
     
  10. The Other David

    The Other David Elite Refuge Member

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    Yes but I won't see him again for a while.
     

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