LLC & Residence

[thomtax]

Charging order protection

I'm a long way from an expert on LLCs, but what does this mean? I have never seen this phrase before.

Second - to show my ignorance, the first thought in my mind is how do you put a personal item in a business, legimately? You did not say, but were they planning to pay a fair market rent to the LLC for their home?

LT

[thomtax]

Charging order protection

I'm a long way from an expert on LLCs, but what does this mean? I have never seen this phrase before.

Second - to show my ignorance, the first thought in my mind is how do you put a personal item in a business, legimately? You did not say, but were they planning to pay a fair market rent to the LLC for their home?

LT

[jmc]

NOT "tax evasion scheme"

My intention the post was to ask for help by sharing with colleagues, when my brain does not work properly and could not think clearly on a Friday afternoon. I did NOT initiate the post with any intention of "tax evasion scheme". Please refrain from using abusive words.

Charging order protection is LLC's one of the biggest advantages against other entities, which you may need more research on.

[jainen]

tax evasion scheme

>>Is there any further potential issues?<<

Yes, there are, but before you move onto them I think you need to work a little more with the ones you already have.

Start with, "the asset, residence, can be protected from lawsuits." More than likely, putting non-business assets into the LLC would instead destroy any protection they may have had for the rental property.

As to, "mortgage interest and property taxes can be deducted as LLC expenses," you know that's nonsense. The LLC can only deduct ordinary and necessary expenses of the rental business. Any use of business funds for personal benefit must be treated as a dividend, draw, or other distribution.

This is all a bigger problem for you than for the taxpayers. They would probably only have an underpayment with penalties and interest. You could face IRS sanctions and a civil suit for signing off on such a patently improper tax evasion scheme.

[jmc]

My client with rental properties set up an LLC. Now, they ask me if it is better to put their residence also into the LLC.
Things I can think right now are as follows.
First, the asset, residence, can be protected from lawsuits with charging order protection.
Next, when filing LLC tax returns, mortgage interest and property taxes can be deducted as LLC expenses instead being reported as itemized deductions with phaseout limitations. Of course, $250000/$500000 gain exclusion will not be applied on LLC at sale.
Is it better to put the residence into LLC or leave it under personal names?
Is there any further potential issues?