Americans buy more than five million homes every year. In most cases, those homes are purchased by individuals, but in some cases, the homes are purchased by an LLC.
In most cases, this is done to shield the buyer from excess taxation as well as liability. If you’re considering buying a home through your LLC, there are a few things you need to think about first.
What Is an LLC?
The term LLC is an acronym that means limited liability company. These companies are unique because they have some properties that you would expect from an individual in a sole proprietorship and some properties of a corporation.
In a very basic sense, an LLC does two things:
- Pass-Through for Tax Purposes. First and foremost, an LLC is a pass-through for tax purposes. That means income is passed through the LLC and taxed as personal income generated by the owner or owners of the company.
- Liability Shield. An LLC also acts as a liability shield. That means if someone sues the company, the liability falls on the company rather than its owner or owners.
Why Buy a Home Through an LLC?
Now that you know what an LLC is, you may be wondering, “what’s the benefit of buying a house through an LLC?” There are a few primary benefits to buying a house this way:
- Tax Effect of Buying a Home through an LLC. Most people that buy homes through LLCs do so to generate income using that home. For example, they may be renting the home to tenants or remodeling and flipping the home for a profit. Regardless of which way the buyer goes, when doing the transaction through an LLC, the owner doesn’t have to worry about double taxation and may be able to reduce the tax burden of income generated from the home.
- Liability. If something happens to tenants in the home and the home is owned by an LLC, the LLC is the liable party, not the owner or owners of the LLC. This can prove to be invaluable in the case of a lawsuit.
- Privacy. When you purchase a home through an LLC, the LLC becomes the listed homeowner on public records, not you. This could be beneficial if your reputation could be damaged by owning the home.
- Expense Write offs. Expenses like utilities, the cost of repairs, and insurance costs can all be written off for tax purposes when an LLC owns the home.
No matter which of these benefits appeals most to you, they all provide significant value, and some provide significant protection when compared to buying a home as an individual.
When you make the decision to buy a home through an LLC, it’s important to carefully consider the pros and cons. While doing so comes with tax and liability benefits, there’s also a downside. In the end, your company owns the home rather than owning it yourself, and that ownership can be a meaningful difference with its own implications. If you’re not sure which option is best, consider speaking with an accountant or tax attorney to help you make your decision.
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