...
Spread the love

Can My LLC Rent from Me? Yes, But How? (Explained)

Max Smith

Reading Time: 6 minutes

When you start an LLC, you may have assets under your LLC. But when you think about living in one of your LLC’s properties, a question may arise: “Can my LLC rent from me?”

You can form an LLC with property or later transfer your personal property to your LLC. It’s a way to protect your property from your liabilities. But there are some consequences to face. 

In this article, you will get answers related to the questions of LLC rental property, its consequences, and its benefits for you. So, without further ado, let’s go!

Yes! It’s 100% legal to live in your LLC’s house. But it’s not going to be accessible for you!

An LLC is a legal entity, and you own an LLC, so you cannot use its property as you wish unless you pay rent. So, you can live in the house only if you rent it.

But are you one of those who can enjoy living in an LLC house? Let’s figure it out below.

Do you want privacy? If you live in your LLC’s house, the name of your LLC will be on the documents. So your identity remains safe. 

Moreover, you may need asset protection. If you feel your assets are at high liability risk, buy them using an LLC.  

Lastly, if you are rich and don’t care about the expenses you will face, go ahead and live in your LLC’s house. 

Mainly, the problem is taxation when you start living in an LLC’s house. Let’s see the taxation complications below.

  • Extra Income/Losses

When you provide rent to your LLC, it’s an income for your LLC. It enhances the taxable income in your LLC. 

On the contrary, if you do not pay, it will be considered a passive income loss. Such losses may only be compensated by passive income and usually carry over to the following year.

  • Not Eligible for a Property Tax Break

When you live in an LLC’s house, you may miss out on taxation advantages. Property taxation is low in some states if a homeowner lives in their own home.

  • Absence of Capital Gains

Usually, when you sell your personal property, you only need to pay taxes once it crosses $250,000. But as of now, the property is under an LLC, so it can cause you to pay higher taxes. 

It can be up to even 20%. It depends on your LLC’s income. Besides, if your LLC is less than a year old, the capital gain tax rate will depend on your income tax bracket.

Lastly, if transferring your property to your LLC is profitable, do it. But yes, you can also form an LLC after buying a property.

Can I Form an LLC and Pay Rent to Myself?

You can form an LLC to secure your property from liability and enjoy taxation benefits. Then, you can live in it by paying rent to the LLC. As you form an LLC, you must pay and maintain the fees regularly. 

Moreover, it would help if you considered some factors before turning your property into an LLC property. Some of them are shown below.

Financial Aspect

Do you know the market rate for renting a house? You may pay your LLC at the market rate. It will be a fair rate.

Usually, homeowners pay for utilities, maintenance, repairs, and many other costs. But they pay for it separately. When the house is under an LLC, you need to decide the amount as a rent to cover all the expenses.

Furthermore, your rent is a phantom income for your LLC. Suppose you rent $5,000 to your LLC. There are 4000 expenses that the LLC will bear using your rent of $5,000. The rest of the $1,000 is phantom income for your LLC.

Legal Paperwork

You must fill out the formalities between a landlord and a tenant. It’s just like leasing a property. So, you must go through the formal steps of a rental agreement. Lastly, you can use that agreement for taxation purposes.

Separate Bank Account

Open a bank account for your LLC. You will transfer the money as rent from your personal account to a business account. So, the accounts will be different, and the transaction will be transparent.

Tax Implications

Rent is an income for an LLC. And yes, it’s taxable! The more rent you pay, the more chances there are that the IRS will tax your LLC. 

Moreover, you will also pay taxes as a business owner and employee. Furthermore, when you sell the property, there will be capital gain taxation. It’s higher than selling personal property.

How to Rent a House Under an LLC

Does your LLC own a house? If yes, then put it on rent for passive income! The tenant can be anyone, including you!

But what is the process? It’s the same as forming and registering an LLC. If you want to know how to form or start your LLC, read our article about how to start an LLC.

Then, you may need to do something more for a rental property. They are:

  • Tax Identification Number

It is also known as an EIN (Employee Identification Number). It’s a crucial component of setting up a rental property.

  • Business Account

You must open a separate bank account for your LLC to keep it separate from your account.

  • Transferring the Ownership

If the property is in your name, you can transfer it to the LLC. It requires a deed. 

Moreover, you can have a mortgaged property. Ask your bank whether you can share your mortgage property with the LLC. It’s always recommended to ask your lender or bank first!

Lastly, you may have several properties. In that case, you must decide whether to incorporate all your businesses into one LLC or form multiple LLCs. 

Undoubtedly, LLC rental properties provide some advantages that can be valuable to you.

Benefits of an LLC Rental Property

There are several reasons to enjoy a rental company. The advantages will outweigh the disadvantages. Some of them are described below.

  • Protection

Do you have debt personally? It can be harmful to your property. You may fail to repay your loans, and the court will sue your assets. 

However, LLCs can protect your property from lawsuits or liability. An LLC will own your property, so the property has no more ownership interest in you.

  • Taxation Favor

Enjoying less taxation is one of the valuable reasons behind buying a house with an LLC. LLC offers a pass-through taxation opportunity. If you double your expenses, like mortgages, repairs, and more, it can lower the taxes.

  • Privacy

You don’t need to show your name. The owner is an LLC, so the name of the LLC will be everywhere on legal papers.

  • Strategy

If you have multiple properties, you put them together to form an LLC. It’s a way to gather all your property and create a brand name.

Conclusion

So when you get the question, “Can my LLC rent from me? Invariably, the answer is yes. But it’s always a good idea to consult an expert service provider to make better decisions. 

LLC rental has both advantages and disadvantages. You must analyze your current situation, and if you think things are going well for you, then live in your LLC’s house from today on.

Frequently Asked Questions

Can I rent my own property to my business?

Yes! It’s common to rent your personal property to your business or LLC. In that case, you will receive rent from your LLC, just like a landlord. You can enjoy the fact that an LLC has the right to have a property on rent.

Can a business rent a house for an employee?

It’s 100% legal for a business to rent a house for an employee. But it is tax-deductible income for the employee. It is included in the benefits that employees will receive.

Can my LLC buy my house?

Of course! If the operating agreement allows an LLC to buy a real estate agency, it can buy your house. Moreover, you will be a seller, and your LLC will be a buyer. You both will maintain all the legal paperwork for the transfer of ownership.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


Spread the love
Scroll to Top
Seraphinite AcceleratorOptimized by Seraphinite Accelerator
Turns on site high speed to be attractive for people and search engines.