Tax advantages of forming an LLC for home construction and sale?
I own a vacant lot next to my current property and I'm planning to build a house on it myself, acting as my own General Contractor, with the intention of selling it when complete. I've been looking into whether there are tax benefits to creating an LLC for this project. I'm trying to figure out if there are any tax advantages to forming an LLC and running everything through that entity (hiring subcontractors, paying them, purchasing materials) versus just handling it all personally through my individual accounts. This is my first time taking on a project like this, and I want to make sure I'm making the smartest decision from a tax perspective before I break ground. Has anyone done something similar and can share their experience with either approach?
18 comments
Join the conversation
Dylan Campbell
Having worked with several clients in similar situations, I can share some insights about the potential tax advantages of using an LLC for your construction project. The main benefits of using an LLC could include liability protection (separating your personal assets from business liabilities), potential business expense deductions that might be clearer when separated from personal finances, and possibly some flexibility in how income is taxed. Since you're planning to sell the property after construction, the LLC structure could help clarify that this is a business venture rather than a personal one. However, forming an LLC doesn't automatically change your tax situation. By default, a single-member LLC is treated as a "disregarded entity" for federal tax purposes - meaning profits and losses still flow through to your personal tax return (Schedule C). You could elect to have your LLC taxed as a corporation, but that introduces other complexities.
0 coins
Sofia Torres
•Thanks for the info. I'm confused though - if the LLC is a "disregarded entity" and everything flows through to my personal taxes anyway, what's the actual tax benefit? Wouldn't I be paying the same taxes either way? Also, would building a single house even qualify as a "business" for tax purposes?
0 coins
Dylan Campbell
•The "disregarded entity" status means the LLC's income is reported on your personal return, but that doesn't mean there are no benefits. With a clearly established business purpose, you may have a stronger position for claiming business deductions and expenses related to the project. Many people find it easier to track business expenses when they're separate from personal finances, which can help ensure you're capturing all legitimate deductions. As for whether building a single house qualifies as a business, the IRS looks at your intent. If you're building with the clear intention to sell for profit (rather than for personal use), that generally qualifies as a business activity, even if it's just one property. This would likely be reported as a business on Schedule C, or potentially as a capital gain depending on the circumstances and how long you hold the property.
0 coins
Dmitry Sokolov
I used taxr.ai for a similar situation last year when I built a spec home and wasn't sure about the LLC vs personal approach. I uploaded all my receipts, contractor invoices, and some notes about my plans, and their system actually analyzed everything and gave me a detailed breakdown of the tax implications for both scenarios. For my situation, the LLC made sense because I was planning to do multiple builds over time, but their analysis showed that for a one-time project, the expense and hassle of the LLC might not be worth it unless you're particularly concerned about liability. The website is https://taxr.ai and they have specific tools for real estate and construction tax planning.
0 coins
Ava Martinez
•How does this service actually work? Do real accountants review your docs or is it all AI? I'm skeptical about trusting tax advice from software, especially with something complicated like real estate development.
0 coins
Miguel Ramos
•Did they help you figure out how to handle the sale too? I've heard horror stories about people getting hit with unexpected taxes when they sell properties they've built. Wondering if they cover that part of the process too.
0 coins
Dmitry Sokolov
•The system uses AI to analyze your documents but they also have tax professionals who review complex cases. It's not just generic advice - they look at your specific situation and documents to give personalized guidance. I was skeptical at first too, but the analysis was really thorough and referenced specific tax code sections. As for handling the sale, yes they absolutely covered that. They walked me through different scenarios based on how long I would hold the property before selling, and explained the differences between being taxed as a dealer property (ordinary income) versus a capital asset (potentially lower capital gains rates). They even helped me understand the documentation I should keep to support my tax position.
0 coins
Ava Martinez
Just wanted to follow up - I actually tried taxr.ai after my skeptical question. Gotta say I'm impressed! They helped me understand that in my specific situation (I'm doing a similar project but in a high-liability state), the LLC made sense even for a one-time build. They pointed out some state-specific tax benefits I hadn't considered and showed me how to properly document everything to maximize deductions. The report they generated was way more detailed than what my regular accountant provided, with specific references to tax code sections that applied to my situation. Definitely worth it for peace of mind when dealing with a big project with significant tax implications.
0 coins
QuantumQuasar
From personal experience trying to contact the IRS about business entity questions, it's nearly impossible to get through. When I was setting up my LLC for real estate development, I needed clarification on some specific tax elections and spent DAYS trying to reach someone. I finally used Claimyr (https://claimyr.com) to get through to an actual IRS representative. They have this system that basically holds your place in line with the IRS and calls you when an agent is about to answer. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Saved me hours of waiting on hold and I finally got the specific answers I needed about LLC taxation for my construction business.
0 coins
Zainab Omar
•Wait, how is this even possible? The IRS phone system is notoriously terrible. Is this some kind of scam where they charge you a bunch of money to do something you could do yourself?
0 coins
Connor Gallagher
•Does this actually work for business tax questions? Last time I called the IRS they just gave me generic answers and told me to talk to a tax professional. Not sure if it's worth the effort even if I can get through.
0 coins
QuantumQuasar
•It's definitely not a scam - they use technology to navigate the IRS phone tree and maintain your place in line while you go about your day. Instead of you having to wait on hold for hours, their system does the waiting and calls you when an agent is about to answer. I was skeptical at first too. For business tax questions, it really depends on what you're asking. They can't give tax advice per se, but they were very helpful in clarifying filing requirements for my LLC and confirming how certain elections work. When I had specific questions about construction business deductions, they directed me to the right publications and forms. Sometimes getting the right direction is worth it, even if they can't give you specific tax planning advice.
0 coins
Zainab Omar
I have to eat my words about Claimyr being a scam! After posting my skeptical comment, I decided to try it because I was desperate to talk to someone about my S-Corp election for my construction LLC. I'd been trying to get through for weeks with no luck. Used the service yesterday and got a call back in about 45 minutes (the website estimated 1-2 hours). Got connected to an actual IRS business tax specialist who walked me through the exact forms I needed and confirmed my filing timeline. For anyone dealing with business entity questions, being able to actually speak to someone instead of guessing or relying on possibly outdated online info was incredibly valuable.
0 coins
Yara Sayegh
Something nobody's mentioned yet - insurance! I did a similar build-to-sell project last year without an LLC and had a nightmare with insurance. Personal homeowner's policies often won't cover properties you're building to sell, and getting the right builder's risk insurance as an individual was more expensive than it would have been for an LLC. My tax guy said the LLC probably saved me about 10% on insurance premiums, plus made it easier to deduct those premiums as a business expense. Just another angle to consider beyond the direct tax implications.
0 coins
Keisha Johnson
•Did you set up the LLC before or after buying the lot? I already own my lot personally, and I'm wondering if transferring it to an LLC would trigger any transfer taxes or other issues.
0 coins
Yara Sayegh
•I already owned the lot personally before setting up the LLC. In my state (Colorado), I was able to transfer the property to my LLC using a quitclaim deed. I did have to pay a nominal recording fee, but there wasn't any transfer tax in my case since it was essentially transferring to myself. However, this varies significantly by state and locality. Some areas have substantial transfer taxes, and the transfer might also affect property tax assessments. There's also the question of how a lender might view the transfer if you have a mortgage or plan to get construction financing. I'd recommend checking with a local real estate attorney about the specific requirements in your area.
0 coins
Paolo Longo
One thing to keep in mind is that if you're just doing this as a one-off project, the costs of maintaining an LLC might outweigh the benefits. In my state there's an annual $800 minimum tax for LLCs even if you don't make any money that year, plus filing fees and possibly an operating agreement drafted by a lawyer. For a multi-year project that might add up to thousands in costs just to maintain the entity. Might be worth it for liability protection but tax-wise it could actually cost you more if you're just doing one house.
0 coins
CosmicCowboy
•That's a good point about ongoing costs! In my state (Michigan) the annual fee is only $75, so it's much less of a consideration. Definitely shows how important location is for this decision.
0 coins