Tax on a rental property income

Forum|Forum|2 years ago
December 27, 2023
2 replies
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I currently own a rental property and 95% of the rent is taxable. I am looking at further real estate investment that might become source of income in future. With that in mind, what if i purchase second rental property, using loans, and then combine the two rental properties under a single (business) entity, so that my net-net income drops and hence i dont pay as much to uncle sam. Is this as slam dunk as i think or am i missing something?

Not A Product Question

Best answer by Critter-3

You are overthinking this ... do NOT incorporate immediately until you do your homework.

If you are reporting the rental on the personal return now using the Sch E then a second rental will also go on the Sch E and both of them net each other out automatically ... no need to open a business to do the same exact thing.

Bsch4477

Employee

No problem having one business entity comprised of multiple entities. But each property should have its own income, expenses and depreciation reported.

Mike9241

What type of business entity? A single-member LLC presents no income tax issues. Can't say the same for an S-corporation. In a SMLLC the mortgage debt is included in your tax basis. Not so for an S-Corp, only investment and direct loans from the shareholder count towards their tax basis so if a property produces losses there can be limitations on what you can deduct. Also, be aware that unless you are a real estate professional losses on rental real estate is subject to the passive activity loss rules.