Investement Property Question - Posted by Mahmood Aijazi

Posted by Rich-CA on January 10, 2008 at 19:03:46:

Maybe. Ask your CPA. It usually requires you be able to be classified as a professional in regards to your RE business. Your CPA can help with the specific requirements.

Investement Property Question - Posted by Mahmood Aijazi

Posted by Mahmood Aijazi on January 10, 2008 at 11:07:47:

We bought a investment property in 2006. It was a new townhouse, which we are renting.

We found out later that due to our high income tax bracket, we can not claim the deductions of mortgage payments and depreciation of the building until we sell it. We do not have any plan to sell it and in current market it is not wise either.

Can we make an LCC and transfer that house to that LLC and run it like a business?

Re: Investement Property Question - Posted by Penny

Posted by Penny on January 12, 2008 at 15:29:38:

As Rich says, see your CPA. But also ask if your CPA either owns real estate themselves, has a number of clients who do, and understands possible gotchas regarding the Alternative Minimum Tax for higher income folks.

Putting it into an LLC should help you offset rental income against mortgage interest, depreciation and other expenses within the LLC as a business. The LLC resultant profits or losses flow through to you. Rich is also correct - if your income is too high, you cannot take the losses against your ordinary income unless you or your spouse qualifies as a real estate professional. If you are unable to use the losses, you can, however, carry the losses forward.

Be aware that there are a couple of pending cases with the IRS regarding real estate professional status and that this designation is being scrutinized.

Also be aware as a high income earner that even if you can take the losses, you may be subject to the alternative minimum tax (AMT). The AMT rules are different, i.e. most deductions go away or are reduced, and you get to calculate your taxes under two different rules, then pay the higher one. So definitely see a qualified CPA.