Home to Rental

Today we hear from Bill in MD who tells us. “I have a single family home I lived in since 1995. I will be renting it out starting January 1st. What I like to do is set up a LLC in my name and sell the property to the LLC. Would this allow me to take the personal residence exclusion? If so, would it allow me to increase the basis to the purchase price so my depreciation is higher in the LLC, than using the basis I have now? Does this work and can I do it?”

Hi Bill,

Great question. And gosh, gee whiz,…

NO. It absolutely won’t work.

If you sell that property to the LLC, you won’t be able to use your personal residence exclusion. In fact, you can’t sell your property to your LLC, since your LLC is you.

That’s called a related party. You own 100% of an entity, so it’s——YOU!

Second, even if you did transfer it to the LLC, it would go in there at your present basis. No step-up. Good try, though. I like your thinking.

Now if you really want to have your cake and eat it too, or to use your exclusion AND get a step up in basis,…try this.

Just sell your home. You get the whole exclusion.

Then, take all that money and buy another property which WILL have the higher basis and which WILL generate lots of depreciation write-offs – and which might even generate a better rate of return than a home.

And remember, you can find answers to all kinds of questions about real estate and other tax issues, free. Where? Where else? At TaxMama.com

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