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Barrister
Barrister, Attorney
Category: General
Satisfied Customers: 34255
Experience:  16 years practicing attorney, Realtor, 26 years landlord
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I am looking into purchasing an investment property. It will

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I am looking into purchasing an investment property. It will be under an llc.

1) I was thinking about personally funding the actual purchase of the property as Equity. Am I correct in assuming that some day when I sell the property I will be able to deduct the Equity from the sale price and pay taxes only on the profit ?

2) Another option is to get a note from the company and then make my llc pay me back monthly payments with interest. In this case I am assuming that I would have pay tax on the entire sale price ( when I sell it some day) because he llc already paid me back ?

From a tax standpoint is 1 or 2 a better option ?
Hello and welcome! My name is XXXXX XXXXX I will try my level best to help with your situation or get you to someone who can.
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1) I was thinking about personally funding the actual purchase of the property as Equity. Am I correct in assuming that some day when I sell the property I will be able to deduct the Equity from the sale price and pay taxes only on the profit ?
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Correct. You would recoup your initial investment and any capital improvements that you make to the property (i.e. additions, upgrades, etc.) and what is left over is your profit.
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2) Another option is to get a note from the company and then make my llc pay me back monthly payments with interest. In this case I am assuming that I would have pay tax on the entire sale price ( when I sell it some day) because he llc already paid me back ?
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Correct as well. If your investment is repaid as a debt the LLC owes to you for the property, then you would have to report any interest you earned as income. When the LLC had paid off the property, your personal investment would be repaid and if the LLC sold the property, it would deduct its investment from any sale price to determine its profit on the property.
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But since LLC income passes through to the members of the LLC as regular income and is taxed at their normal personal income tax rates, I don't see any real tax benefit to this transaction because you are essentially charging and paying yourself. So there is really no difference in taxation.
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Thanks
Barrister
Customer: replied 3 years ago.

Thanks for the response.


 


Regarding the improvements. My thoughts are the provide enough personal equity to purchase the property but then if there are improvements (painting, carpet etc. ) I would rather expense them.


 


My reason is that I want to have enough expenses to offset the income I will receive for the year from renting the property. Thus keeping the profit / tax low at the end of the year.


 


Anything wrong with this approach ? Any better suggestions to keep of year tax low ?


 


Thanks

Anything wrong with this approach ? Any better suggestions to keep of year tax low ?

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Nope, that is fine. Expenses are different than improvements though. Expenses should be written off each year against income. But for example if you put on a room addition, that is an improvement. New carpet is an expense.

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Thanks

Barrister

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