I have an opportunity to buy a house. I contacted the owner and we have agreed on terms verbally, it just needs to be put in ink, reviewed and signed. I’m wondering about putting this in an existing SMLLC, taxed as a proprietorship. The person living there is family and can not work, I’d still be paying for it either way. Is it okay to do something like this and consider it a self rental, or just pass it through to them and report it as rental? Just looking at ways to go about it I guess.

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This seems like such a bad idea. You are buying a house with a tenant that can’t pay rent and hoping that they eventually get disability and will then pay you? I hope you are getting a huge discount to take this risk.

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As far as tax implications there are rules about renting a property to family at below market rents. Basically you can’t claim a tax loss if you aren’t charging market rate rents. But if you are just doing this to help family that shouldn’t really matter.

The reason I ask specifically about an SMLLC is because the entity already exists, is established, has a separate bank, operating agreement and all formalities. I just have not ever placed real estate in an SMLLC before.

Let me ask this question, what benefit are you trying to draw from putting it in an SMLLC!

The only think an LLC potentially does is help with liability. Given how state specific it is, worth a phone call to a lawyer.

If you were going to do it, I’d prob set up a separate LLC to truly separate everything.

Are you getting a loan on it or is it seller financing or alternative lending or cash?

If you are turning it into a rental I would put it an llc since you don’t need a bank loan. From a tax perspective if you’re the only one on the llc it gets taxed the same on your personal return and it gives some liability protection but ask a lawyer for specifics.

If the goal is to insulate from liability, a separate entity (LLC or S corp) is usually the standard approach.

LLCs are very state specific, so a lawyer/company that specializes setting up LLCs may be worth it in this instance.

The reason is how distributions are treated. If you have to take the real estate out of the s Corp it’s treated as a sale at FMV.

If you take it out of a SMLLC it has no tax effect.

Partnership distributions can usually be planned to be tax deferred.

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