Should You Create a New LLC for Your Vacation Rental?

Should you create a new LLC for your vacation rental? Eliot Thomas and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• I rent my personal residence and my home office is my primary place of business for my S Corp. Am I a good candidate to take advantage of Section 280A deduction or does that fact pattern disqualify me? No, you're not disqualified. Keep the areas separate and you are a good candidate to take advantage of 280A and still have the administrative office reimbursement.
• Is it possible to minimize taxes by selling the C Corp, which holds property via a 1031 exchange and then form an LLC to buy the replacement property? Generally, no. If you're going to have appreciable real estate, a rental, you can't do 1031 on flipping property. It's considered inventory.
• I just bought a lake cabin in Wisconsin where we will be renting it out as VRBO as much as possible, but also using it for some personal use for our family. Will I need to create a new LLC to hold the cabin in and how much of it can I write off given we're unsure about how much it will be rented out, especially the first year? If your personal use exceeds 14 days or 10% of the rental time, it is considered your vacation property and you can’t take losses beyond your income.
• Is there any limit on how long a person should keep tax records? It depends. Most people recommend three to seven years, unless you know you did something wrong. You’ll want to keep all tax records to convince and defend yourself against the IRS.

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Resources:

Entity Formation

https://andersonadvisors.com/entity-formation/

Section 280A Deduction

https://andersonadvisors.com/section-280a-deduction-explained/

1031 Exchange

https://www.irs.gov/pub/irs-news/fs-08-18.pdf

Qualified Business Income (QBI) Deduction (199A)

https://www.irs.gov/newsroom/qualified-business-income-deduction

Tax Cuts and Jobs Act

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses

K-1 Form

https://www.irs.gov/forms-pubs/about-schedule-k-1-form-1065

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ

Anderson Advisors on Facebook

https://www.facebook.com/AndersonBusinessAdvisors/

Anderson Advisors Podcast

https://andersonadvisors.com/podcast/