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Suppose, I have a home that I want to rent, and it is paid off and valued at about $350K. I am currently living in this home.

Should I sell this home to a LLC ( This LLC to be formed and owned by me), and take loan of about $300K for the LLC, freeing up my cash that I can use in buying a new home or put in S&P500 index. Is that possible?

When I read Should I rent out a home I own outright or one with a mortgage? , I guess I can get substantial benefits by renting my home via LLC as my mortgage interest will directly reduce my rental income. Is that legal and ethical ?

Brythan
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riya
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1 Answers1

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I may be missing something, but I don't think you need an LLC just for the tax benefit. You can claim the interest expense as a business expense even as a "sole proprietor" for tax purposes.

LLC are designed to provide liability protection, not tax benefits. Most tax benefits apply to both LLCs and sole-proprietorships through business income/expense calculations. If the mortgage on your home is itemized, then it should be roughly a wash whether you mortgage the home or mortgage the rental (all else being equal).

So I would instead focus on whatever reduces your expenses the most (i.e. lowest interest rate) instead of the tax consequences. There's no sense in spending an extra dollar of interest just to keep from sending the government 40 cents in tax.

D Stanley
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