My client and his daughter are buying a two family. He is putting up the money. She is going to live in it and manage it and get any profits. Their thought is to form a partnership LLC, for which I would prepare a Schedule E every year for her return, with an operating agreement that will stipulate that she is in charge of collecting rent and paying all expenses and he will get most or all of cap gain. He asked me, does she pay rent to the LLC. My thought is no, she would be paying rent to herself. She would just deduct her portion of residence interest and taxes on Schedule A and report rent and rental expenses of E. Also can a principal residence be in an LLC to begin with?
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