Stay or Sell?

NEW -> Contingent Buyer Assistance Program
IrvineRenter





Correct me if I am wrong....she has to show the rent as "income." Since she has to show it as income it is going to be taxed at the normal state and federal levels for that amount. If she sets up an LLC or S-Corp, would have to deed the house to the LLC or S-Corp, she can reduce her taxable income on the property plus if she does ever sell for a loss she can carryforward the loss for 5yrs again reducing her tax base. I would also assume that she could show a loss each yr as the mortgage is more than her rental rate, assuming $1200.00 / month, I have never done this before so I am not sure if everything is right. However, my friend and I occasionally discuss that if we had to sell today and take a loss what would be the best way to do it. This is somewhat similar.





Halfnote





This is just one option of many options. I always try to pay uncle sam the least amount of money possible when I can...but remember don't f' with Uncle Sam b/c he can make your life hell. I suggest that you meet with your accountant and talk over some of these strategies.
 
mino2126,





An LLC or an S-corp is a pass-thru tax entity which has all gains and losses falling to form 1040. So income from these entities is taxed just like regular income. I have never owned a rental which did not positively cashflow, so I didn't think about the losses when I was saying an entity would not be helpful. You may be able to get around loss limitation rules if you use an entity pass-thru (I do this for my stock trading.) So in retrospect, an entity might be helpful. However, the $800 a year fee from the State of California is still required. There is no legal way around the fee, although many people apply for these things out-of-state and simply fail to report it to the State. The Franchise Tax Board often catches these people with tax return info. It is pretty hard to argue a LLC or S-Corp that is 100% owned by a California resident is not "doing business" in California. So it may not be advantageous once the additional costs are figured in.





Personally, I have used <a href="http://www.incparadise.com/">http://www.incparadise.com/. </a>
 
Halfnote....since IrvineRenter and I are halfway on the same page I really suggest that you talk to an accountant, check into renting both your place and a new place, and see where that gets you. Your mortgage is super cheap and you would actually be paying more to rent at current prices.





Also, if you work for a smaller company you can take advantage of the LLC or S-Corp by coming a contractor 1099. This is to long to explain on here how it works but again it limits your taxable income but sometimes you loose other benefits.
 
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