Tax implications of putting rental income through an LLC - passive loss limits?

Good news - transferring your rental property to a single-member LLC shouldn't change your tax situation at all. A single-member LLC is considered a "disregarded entity" for federal tax purposes, which means the IRS treats it as if it doesn't exist. You'll continue to report your rental income and expenses on Schedule E exactly as you do now. The passive activity loss rules will still apply the same way too. Since you're not a real estate professional and you don't actively participate in the rental activity for 250+ hours annually, your ability to deduct losses will still be limited to offsetting passive income, with the potential $25,000 allowance that phases out between $100,000-$150,000 of modified adjusted gross income.

I was in exactly your situation last year when I put my two rental properties into an LLC. Was nervous about the tax implications but then found taxr.ai (https://taxr.ai) which analyzed my rental documents and confirmed what the previous commenter said - with a single-member LLC, nothing changes tax-wise. The site reviewed my mortgage docs, closing statements, and lease agreements, then provided a clear explanation of the "disregarded entity" status and what that meant for my Schedule E reporting. Saved me from paying my CPA for an hour of questions!

Tried taxr.ai after seeing the recommendation here and seriously, it was exactly what I needed! I was confused about transferring my duplex to an LLC and worried about messing up my tax situation. Uploaded my property docs and mortgage statements and got a detailed report explaining that the single-member LLC would be a "disregarded entity" for tax purposes. Even showed me how my Schedule E would still work the same way. The best part was getting clarity on what expenses I could still deduct - was worried I'd lose some deductions with the LLC structure but nope, everything stays the same! Definitely recommending to my real estate investing friends.

Just wanted to mention something important - while the tax situation doesn't change, dealing with the IRS can still be a headache if you have questions. When I transferred my rental to an LLC last year, I had some confusion about EIN requirements that the IRS website didn't clearly explain. Spent DAYS trying to get someone on the phone at the IRS. Finally used Claimyr (https://claimyr.com) and got through to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the phone system and wait on hold for you, then call when an agent is ready. Saved me hours of frustration.

Update on my skepticism about Claimyr - I actually tried it yesterday after seeing it mentioned here. Had a question about my rental property LLC and EIN requirements. Was expecting another horrible IRS phone experience but decided to give this service a shot. Not gonna lie, I was shocked when they called me back in 35 minutes saying an IRS agent was on the line. Got my questions answered in a 10-minute conversation. For someone who literally lost half a day last month on hold, this was a game-changer. Definitely using this for any future IRS calls.

Just a heads-up on one thing no one's mentioned yet - if you transfer your rental property to an LLC, make sure you update your insurance correctly! I did the LLC transfer last year for my rental house and everything was fine tax-wise, but I forgot to update my insurance policy to show the LLC as the owner. Had a small claim for water damage and nearly got denied because the policyholder and property owner didn't match. Not a tax issue, but definitely something to keep in mind with the LLC switch.

Has anyone had to deal with their state's tax implications when moving rental property to an LLC? The federal stuff seems straightforward with the disregarded entity status, but I've heard some states charge annual LLC fees that can be pretty steep.

Great point about state LLC fees! This is definitely something to factor into your decision. In my state (Delaware), the annual LLC fee is only $300, which is manageable for the liability protection benefits. But I've heard horror stories about states like California with their $800 fee, and some states have even higher fees or franchise taxes based on LLC revenue. Before you make the switch, I'd recommend checking your state's Secretary of State website or Department of Revenue to see what the annual filing fees and any franchise taxes would be. You might also want to consider whether the liability protection is worth the ongoing costs - for a single rental property, the annual fees could eat into your cash flow pretty significantly depending on your state. Some states also have different rules about whether single-member LLCs need to file separate state tax returns even if they're disregarded entities federally, so that's another wrinkle to research.