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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Re: First Time Home Buyer, LLC & Tax Credit. Date: 10/11/2011 1:37 PM
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Ok, here's the situation. I purchased a house in Dec of 2009 and received the $8k tax credit. The house is my primary residence and has been so for the last 2 years.

OK. We're a couple months short of two years at this point, but that's not important.

I recently applied for an LLC and EIN because i rent out 2 rooms in the house.

OK. Why did you get an EIN? Did someone advise you to do that? Reading ahead, I don't think you need one.

I have done major repairs to the house which includes reconstruction of a pool ($12k) / Egress Windows, Maintenance & repairs. In total I've spent roughly $20k or so and have kept all the receipts. I want to claim the income i receive in rent as well as possibly write off some of the repairs, tenants have full access to the house and use of the pool and such.

Any items that are repairs and maintenance - that don't extend the useful life of the property - are an expense. But that expense would need to be prorated between your personal use and the rental use. Items that do extend the useful life of the property need to be capitalized and depreciated.

I know with the first time home buyer credit, I could rent out rooms as long as i still live in the house and it is my primary residence. I plan on investing in additional real-estate in the future, hence the LLC and for liability purposes.

OK. I doubt if there is much liability protection from an LLC for a home you live in, but that is a legal question, not a tax question.

The question I have is, is it possible to claim the income under the LLC, write off some of the repairs and not have to pay back the 8k Credit?? If so, How so? Thanks!

As a single member LLC (you are the only owner of the LLC, I presume), the LLC is ignored for tax purposes. So you'd report your rental income and expenses on Schedule E. All of the usual provisions regarding rental of a part of your primary residence would apply. As you note, the $8k tax credit is fine since you are still occupying the house as your primary residence.

Phil correctly (and popularly) points out that you really don't want to elect to have the LLC taxed as a corporation. (Phil - it's perfectly fine for a single member LLC to elect corp status, either C or S.) In addition to the extra costs of compliance, you'd put your first time homebuyer tax credit in jeopardy, plus C corporations don't get any special tax rate for capital gains (which you will hopefully enjoy from your real estate investment). Further, make one mistake with an S corp and it may end up back as a C corp, with some penalties and the loss of capital gain benefits to boot. So I wouldn't go there.


--Peter
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