Something important that hasn't been mentioned yet: if you use your home partly for business (home office deduction) and you sell the home at a profit, the portion of the profit attributable to the business use is NOT eligible for the capital gains exclusion ($250k for single, $500k for married). For example, if you've been claiming 20% business use of your home, then 20% of your profit when selling would be taxable as a capital gain, even if you otherwise qualify for the exclusion. When my wife and I sold our previous home with a $220k profit after claiming home office deductions, we had to pay capital gains tax on about $30k of that profit due to the business use portion. Still worked out better than not claiming the home office deduction over the years, but something to be aware of in your long-term planning.

This is exactly the kind of thorough analysis I was hoping to find! As someone who's been considering this same move, all these responses have been incredibly helpful in understanding the full picture. Between the higher mortgage rates for LLC purchases (great point about the 0.75% difference), the potential loss of capital gains exclusions, and the complications with personal use being treated as taxable benefits, it's becoming clear that the "tax advantages" I'd heard about are largely mythical for a primary residence situation. I'm particularly interested in what @Romeo Barrett mentioned about the capital gains implications of the home office deduction - that's something I need to factor into my long-term planning. Even though it sounds like the home office deduction is still worthwhile over time, knowing about that partial capital gains exposure when selling is crucial for making informed decisions. It seems like the consensus is pretty clear: keep the primary residence in personal name, take the home office deduction if applicable, and make sure you have good insurance coverage. The simplicity and actual tax benefits of this approach outweigh the theoretical advantages of LLC ownership for most situations like mine. Thanks everyone for sharing your experiences - this has saved me from what could have been a costly mistake!

Has anyone considered the step-up in basis implications here? If the house appreciates and you both own it, when one spouse dies, the surviving spouse might only get a step-up in basis on half the property value. Whereas if only one spouse owns it, the entire property could get a step-up when that spouse dies. Just something to think about for long-term planning.

You're absolutely right about the step-up in basis considerations, and @Victoria Scott brings up an excellent point about non-citizen spouses and estate tax rules. For estate tax purposes, the unlimited marital deduction that applies to citizen spouses does NOT apply to non-citizen spouses, even if they're permanent residents. Instead, there's a much lower annual exclusion (around $185,000 for 2024). This means that when a US citizen dies, transfers to a non-citizen spouse above this threshold could be subject to estate tax. However, there's a planning tool called a Qualified Domestic Trust (QDOT) that can help defer estate taxes for non-citizen spouses. The surviving non-citizen spouse can receive income from the trust, and estate taxes are deferred until distributions of principal or until the surviving spouse becomes a US citizen. So while adding your wife to the deed now creates the gift tax filing requirement we've discussed, it might actually be beneficial from an estate planning perspective since it gets half the property out of your taxable estate. But this is definitely getting into complex territory where you'd want to consult with an estate planning attorney who understands the international implications. The basis step-up issue is real though - with joint ownership, only half the property gets a stepped-up basis when the first spouse dies, versus the full step-up if only one spouse owned it.

heres something nobody mentioned yet - check if your employer offers any kind of stipend for wfh equipment!! my company gives us $500/year for home office stuff and i didnt even know until i asked HR about buying a second monitor. worth asking about before u spend ur own $$$

I'm in a similar boat as a retail manager and went through this exact dilemma last year. Unfortunately, as others mentioned, the employee business expense deduction is gone for most of us. However, I found a workaround that might help you too! I started doing some freelance bookkeeping on the side (just a few hours on weekends) and now I can deduct a portion of my laptop cost as a business expense on Schedule C. Since you're already helping with your partner's Etsy shop, you might be able to formalize that arrangement and pay yourself for the work you do. Even if it's just $50-100 per month, it creates a legitimate business activity that would allow you to deduct the business-use percentage of the laptop. Just make sure to keep detailed records of your time usage - business vs personal vs regular job. The key is having a genuine profit motive and treating it like a real business. It's not a huge tax break, but every little bit helps when you're spending $800+ on equipment!

One more thing to consider - if you're filing the W7 because you're not eligible for a SSN, make absolutely sure that's correct. I spent months going through the W7 process only to find out later I was actually eligible for a SSN, which would have been much easier to get and use long-term. Worth double-checking with Social Security before going down the ITIN path!

Great advice in this thread! I went through the W7 process two years ago and can confirm that order absolutely matters. Here's what worked for me: 1. W7 form on top (as mentioned) 2. Supporting identity documents attached to the W7 3. Tax return (1040) underneath everything 4. Any schedules or additional forms at the bottom One thing I didn't see mentioned - if you're married filing jointly and both spouses need ITINs, you'll need separate W7 forms for each person, but you can submit them together with one tax return. Just make sure each W7 has its own set of supporting documents. Also, pro tip: write "ITIN APPLICATION" in large letters on the outside of your envelope. It helps ensure your package gets routed to the right department at the IRS processing center. My accountant recommended this and I think it helped my application move through faster. Good luck with your application! The wait is frustrating but once you get your ITIN, future tax filings become much smoother.

Has anyone ever had the IRS challenge their treatment of earnest money in a 1031? I'm in a similar situation but worried about getting flagged for audit if I don't report it as ordinary income.

This is such a complex area and I'm seeing some really helpful insights here! As someone who just went through a similar situation, I wanted to add that documentation is absolutely critical. I kept detailed records of the first buyer's breach of contract, the earnest money forfeiture, and how it related to my overall 1031 exchange timeline. My tax preparer said having clear documentation showing the connection between the earnest money and the eventual successful sale was key to justifying treating it as part of the overall transaction rather than separate ordinary income. One thing I learned is that if there's a significant time gap between losing the first buyer and closing with the second buyer, the IRS might be more likely to view these as separate events. In my case, the gap was only about 6 weeks, which helped support treating it as one continuous transaction process. Also worth noting - if you're doing your own taxes, Form 8824 for the 1031 exchange should include all the transaction details, including any adjustments for earnest money situations like this. Don't forget to adjust your basis calculations accordingly!