No. of Recommendations: 3
Could the OP set up the rental as an LLC or some entity and then loan their money to the LLC, later refinancing the "purchase money"?

I'd have to do a good search of case law, but if it worked (and my gut says it won't) it would have to be a corporation or an LLC that elected to be taxed as a corporation. My gut is saying "no" because of related party issues.

I'm sure a disregarded LLC won't help at all. And an LLC taxed as a partnership probably won't work, as most partnership debts are attributed directly to the partners.

The best possibility (and it's still a long-shot) would be if there were an unrelated business partner (really a shareholder, as it would be a corporation) involved. And the loan would have to come from just one of the partners. And even then, you've still got to deal with the tracing rules. And the shareholder loaning the money would have interest income from the loan and would potentially get into the self-charged interest arena - a corner of tax law that I have successfully avoided so far.

In short, I can't give an absolute "No" to the possibility of using an entity because I don't know every arcane corner of tax law. But my gut is screaming "No".

Print the post  


Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.