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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4161
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I just bought property using part of my 403b savings. To get

Resolved Question:

I just bought property using part of my 403b savings. To get to the point, I don't think I should have to pay taxes on this money, because I think it is a start up cost for my business of being a Landlord.
Do I need to apply for a Corporate or LLC to write the cost of the building off?
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Lane :

Hi,

Lane :

You can certainly write of certain costs of business start-up costs ...

Lane :

However, (please don't shoot the messenger here) but the tax benefit of investing THOSE specific proceeds will come really in three forms: (1) You get to depreciate the property every year and take a tax deduction, when/if you eventually sell you will only pay capital gains tax (rather than the higher ordinary income tax) on any gain and (3) That gains will FURTHER be reduced by any investment you made originally, not taken as depreciation over the years

Lane :

This is what IRS calls capitalizing the investment.

Lane :

On setting up the LLC, that's an excellent idea for liability purposes. The LLC is a pass-through for tax purposes (just like a partnership, an S-Corp and the sole proprietorship that you really are now, by default) so you'll get the benefit of taking any losses against other income the lower capitals gains rates that only individuals get (Corporations dont) BUT you'll get the liability protection of a corporation (creditor, lawsuits, etc. can not come after you PERSONALLY for liabilities of the LLC. ... SO the LLC is really the best of both worlds

Lane :

And on the STARTUP costs you CAN write off, here's an excellent piece from SBA (Small Business Administration) on that: http://www.sba.gov/community/blogs/community-blogs/small-business-cents/startup-cost-tax-deductions-%E2%80%93-how-write-expense

Lane :

And finally here's the IRS guidance on capitalizing and writing off the property investment over time: http://www.irs.gov/taxtopics/tc703.html

Lane :

Hope this Helps

Lane :

Lane

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Lane :

Please let me know if you want to discuss this further or have any questions at all...

Expert:  Lane replied 11 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 11 months ago.

Hi Tracy,

... just checking back in HERE, since I never saw you come into the chat.

If you have any questions at all (or want to discuss options) please let me know.

Lane
Customer: replied 11 months ago.


Thank you. Do you have a good link on how to start an LLC?


 


From your answer, I can take deductions for expenses now without being an LLC, but I can't deduct the cost paid for purchasing the building. The LLC protects me from lawsuits on my personal assets. Right?

Expert:  Lane replied 11 months ago.


That's exactly right. The cost for purchasing the building will get reported over time as depreciation AND deducted from and gain when you sell, if you do.

AND there may be OTHER things ... anything related to the business that you CAN write off AS they are incurred.

And finally, yes, here's an EXCELLENT piece on setting up the LLC in Illinois.



Hope this helps

Lane



If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.
HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.
Expert:  Lane replied 11 months ago.


Sorry Tracy,

Forgot to include the link on setting up the LLC

Here ya go

http://www.nolo.com/legal-encyclopedia/illinois-form-llc-32092.html

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4161
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 11 months ago.


Thank you. I will study what you sent me.


 


Take care and keep up the great work.


 


Tracy

Expert:  Lane replied 11 months ago.


Thank you so much!

Look forward to talking to you again...

Lane

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