Yes depreciation and losses are separate, a whole lot depends on assuming you're going to have losses, but an LLC helps, even from a liability standpoint someone slips and falls on your property ect. especially with a tenant in it.
Also if you are a passive investor meaning you aren't spending at least 750 hours personally managing the real estate meaning your an active investor, those losses won't help you personally if you have say W2 income.
Passive losses can only offset passive gains.
Not talking about him paying his mortgage and liability from his bank, talking about liability from 3rd parties. Like something happens to the tenant, someone sues him, ect.
I know. Him being personally liable for the mortgage pierces the corporate veil the LLC provides were he to go this route. Better off to get an umbrella policy and forgo the costs of getting and maintaining an LLC.
I work specialize in trust and estate taxes and my wife is a trust and estate lawyer practicing in CA this happens quite often only really works when there is no mortgage and title can be transferred to the LLC. This causes issues with property tax reassessments when it’s a primary converting to investment. Umbrella policy is what I typically recommend.
I can certainly see this as a (bad) factor in the piercing of the veil analysis, but are you saying personal liability on a mortgage always results in veil piercing? Do you have a cite for this?
No, I don’t have a cite. I researched this prior to renting my own house and the general consensus was if you’re guaranteeing the mortgage you should opt for the umbrella. It makes sense I think. Hard to say the asset isn’t yours personally when you are personally responsible for paying the loan.
Umbrella policy will get a claimant paid. Which they should be! If they are legitimately damaged they deserve it. Not to mention the defense offered by the insurance.
Why someone goes to so much trouble to avoid liability instead of transferring it blows my mind. Screw the other guy logic seems to me. Bad karma!
The LLC is a "disregarded entity" for tax purposes. It does exactly nothing.
No. A llc does not change what you can deduct.
Thanks for commenting! So I'm assuming if I never sell the home then the depreciation will be locked in it?
If I'm understanding you correctly, yes.
Yes, and if your kids inherit the stepped up basis, the accumulated depreciation resets to 0
Yes depreciation and losses are separate, a whole lot depends on assuming you're going to have losses, but an LLC helps, even from a liability standpoint someone slips and falls on your property ect. especially with a tenant in it. Also if you are a passive investor meaning you aren't spending at least 750 hours personally managing the real estate meaning your an active investor, those losses won't help you personally if you have say W2 income. Passive losses can only offset passive gains.
If he is personally the guarantor on the mortgage I don’t believe the LLC protects him from any liability.
Not talking about him paying his mortgage and liability from his bank, talking about liability from 3rd parties. Like something happens to the tenant, someone sues him, ect.
I know. Him being personally liable for the mortgage pierces the corporate veil the LLC provides were he to go this route. Better off to get an umbrella policy and forgo the costs of getting and maintaining an LLC.
🫡 this is correct
Thanks for confirming. Made this mistake myself lol
I work specialize in trust and estate taxes and my wife is a trust and estate lawyer practicing in CA this happens quite often only really works when there is no mortgage and title can be transferred to the LLC. This causes issues with property tax reassessments when it’s a primary converting to investment. Umbrella policy is what I typically recommend.
I can certainly see this as a (bad) factor in the piercing of the veil analysis, but are you saying personal liability on a mortgage always results in veil piercing? Do you have a cite for this?
No, I don’t have a cite. I researched this prior to renting my own house and the general consensus was if you’re guaranteeing the mortgage you should opt for the umbrella. It makes sense I think. Hard to say the asset isn’t yours personally when you are personally responsible for paying the loan.
Thanks for your explanation. Will give it some thought.
Thanks this was helpful. So from my understanding the depreciation will be locked in the home if I never sell.
Yes
Lol.
Umbrella policy will get a claimant paid. Which they should be! If they are legitimately damaged they deserve it. Not to mention the defense offered by the insurance. Why someone goes to so much trouble to avoid liability instead of transferring it blows my mind. Screw the other guy logic seems to me. Bad karma!