Owning property through an LLC can offer potential tax benefits, though these are nuanced and require careful planning. You might be able to deduct certain business expenses, such as utilities, interest, and repairs. This is a tax benefit because LLCs can claim deductions not available to individuals and because you avoid double taxation. However, these deductions are not straightforward and depend on the nature of the property and its use. You can also opt to have the LLC taxed like an S-corp or C-corp if that’s a better structure for your situation.
Any rental income generated by the property is taxable. Denise Elizabeth, a senior finance and accounting editor at FundsNet, points out that you will be generating taxable income for the LLC from yourself, which could lead to a higher overall tax burden. The IRS treats rental income as ordinary income, subject to federal income tax rates, which can be as high as 37% for high earners.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced several changes that affect LLCs, including the Qualified Business Income (QBI) deduction, which allows eligible LLCs to deduct up to 20% of their qualified business income. However, this deduction has limitations and phase-outs for high-income earners.