As a business entity, an LLC can buy and own real estate. But can an LLC owner, or member, live in a home owned by their LLC? The short answer is yes, but there are several key concerns to be aware of before doing so.
The legal structure of the LLC provides a layer of protection for your personal assets, making it an attractive option for some individuals. However, it’s essential to navigate this arrangement with careful attention to legal compliance, financial separation, and thorough record-keeping.
An LLC can purchase real estate for any reason outlined in its articles of organization. Additionally, LLCs can earn income by leasing commercial and residential spaces to tenants.
Tax Implications and Personal Use
It’s possible to rent your house (or part of your house) to your business if your company is incorporated (S-corp or C-corp). This creates a tax write-off for your business, but self-rental rules apply.
Living in a home owned by your LLC can preserve your privacy by keeping your name off public records. However, it comes at the expense of certain tax advantages, like the IRS exclusion on capital gains tax when you sell your home.
Property Ownership and Mortgages
You can get a conventional mortgage loan under an LLC name, often for affordable interest rates. Buying a house with an LLC may require opening a business bank account and obtaining an EIN (Employer Identification Number). The IRS has a free online EIN application.
Rental Property Business
To start your own rental property business, understanding the following steps is critical:
- Ensure the LLC’s article of incorporation allows for buying real property assets.
- Complete the necessary paperwork process.
- Buy property under the LLC.
Advantages and Disadvantages of an LLC for Property
Owning property as an LLC allows members to report income or losses on their individual tax returns. However, issues like the due-on-sale clause, added costs, and fees for creating and maintaining an LLC, as well as more complexities than a sole proprietorship, must be understood.
Property Acquisition with an EIN
Buying a house with your Employer Identification Number typically requires establishing a business entity like an LLC, with the purchase made under the LLC’s name.
Regulatory Aspects
Limited company buy-to-let mortgage lenders often approve companies that deal solely in property. Living in a home owned by your LLC can help with privacy but may weaken liability protection. It’s crucial to check state laws and consult professionals to ensure compliance.
Asset-based lenders offer loans based on the collateral value, not just credit history and income. Purchasing a property for reasons outlined in an LLC’s articles and maintaining financial separation are important for compliance.
So, living in a house owned by your LLC can create more of a headache than real perks for the average person. But, if you have significant needs for privacy or asset protection, then jumping through the necessary hoops might be worth it.