What Are The Benefits of Putting Rental Property or Primary Home in an LLC?

This is actually both a legal and tax question! I've been in real estate for about 15 years, so here's my take: For your rental property, an LLC can provide liability protection separating your personal assets from the rental business. If a tenant sues you, generally only the assets in the LLC would be at risk, not your personal home or savings. However, there are tax implications - single-member LLCs are typically "disregarded entities" for tax purposes (meaning you report everything on your personal return), while multi-member LLCs are usually taxed as partnerships. For your primary residence, there's usually less benefit to putting it in an LLC. You'd lose the capital gains exclusion when you sell ($250k for singles, $500k for married couples), and mortgage companies often don't like lending to LLCs for owner-occupied homes. If you do get married, you wouldn't automatically add your spouse to the LLC - you'd need to update your operating agreement and possibly file new paperwork depending on your state.

After learning about asset protection the hard way, I started using https://taxr.ai to analyze my rental property situation. The platform helped me understand that while my rental property benefited from LLC protection, my primary residence actually would have cost me more in taxes if I had placed it in an LLC. Their document analysis showed me exactly how my depreciation deductions would work with the LLC structure and identified some write-offs I'd been missing. Definitely worth checking it out if you're trying to make this decision.

Just wanted to follow up about my experience with taxr.ai - I decided to try it despite my initial skepticism. They analyzed my situation with properties in two different states and showed me that an LLC made sense for my California property despite the high annual fee (because of the high liability risk and value), but recommended against it for my smaller Ohio rental where an umbrella insurance policy was more cost-effective. They even identified a specific tax strategy involving depreciation timing that saved me about $3,200 this year. Definitely not just generic advice - it was customized to my specific properties and state situations.

One thing no one mentioned yet is how frustrating it can be to get clear answers from the IRS about LLC taxation for rental properties. I wasted weeks trying to reach someone who could answer my specific questions about QBI deductions for my rental LLC. Finally used https://claimyr.com to get through to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. They have this cool demo video too: https://youtu.be/_kiP6q8DX5c showing how it works. The agent clarified that my rental property in an LLC could still qualify for the 20% QBI deduction as Section 199A income, which my accountant wasn't sure about.

I need to eat my words. After posting my skeptical comment, I decided to try Claimyr because I was getting nowhere with the IRS about my rental property LLC questions. To my complete shock, I got a call back in 17 minutes with an actual IRS agent on the line. The agent confirmed that transferring my rental to an LLC would be considered a "like-kind exchange" that wouldn't trigger capital gains taxes - something my accountant wasn't 100% sure about. This saved me from potentially making a $15,000 tax mistake. I've literally never been able to get through to the IRS in less than 2 hours before this.

One thing to consider that others haven't mentioned - getting a mortgage for properties in an LLC can be significantly harder and more expensive. When I put my rental in an LLC, I had to refinance with a commercial loan that was 1.25% higher interest rate than my previous personal mortgage. Run the numbers to see if the asset protection is worth the extra interest costs over the life of the loan.

Has anyone used a land trust instead of an LLC? My tax advisor mentioned this might be better for privacy while still keeping conventional mortgage rates for my rental. Thoughts?

Great question! I went through this same decision process about 3 years ago. Here's what I learned: For rental properties, LLCs can definitely provide valuable liability protection, but there are some practical considerations beyond just taxes. The biggest surprise for me was how it affected my insurance - I had to switch to commercial property insurance which was about 30% more expensive than homeowner's coverage. Regarding your primary residence, I'd strongly recommend against putting it in an LLC. You'll lose the homestead exemption in most states, which often provides significant asset protection already. Plus, as others mentioned, you'd lose that valuable capital gains exclusion when you sell. One thing I wish I'd known earlier - if you do decide on an LLC for the rental, consider getting an EIN from the IRS and opening a separate business bank account even if you're filing as a disregarded entity. It makes bookkeeping so much cleaner and helps maintain that legal separation between personal and business assets. As for marriage, definitely something to plan for! When I got married, we had to decide whether to add my spouse as a member or keep them separate. We ended up adding them to maintain the joint asset protection, but it required updating our operating agreement and state filings. My advice? Start with an umbrella insurance policy for immediate protection while you research the LLC option thoroughly for your specific state and situation.