Can your LLC pay your mortgage? Your LLC can pay the mortgage on properties owned by the LLC, as these are legitimate business expenses. However, for personal property not under the LLC, mortgage payments should typically come from personal accounts to avoid complications with lenders or the IRS.
Personal expenses, including mortgage payments, cannot be directly paid by the corporation without significant tax implications and potential violations of IRS regulations.
A single-member LLC without an election to be treated as a corporation for federal income tax purposes is no different than a sole proprietorship with respect to IRS reporting. Thus, you cannot pay yourself a salary.
Why do people put their house into an LLC? Extended privacy, tax savings, and limited liability protection are three common reasons many individuals decide to put their home under an LLC.
Protection of Personal Assets
One of the main reasons to use an LLC for real estate investing is to limit your personal liability for any debts or lawsuits related to your properties.
As a business owner, you can buy a house with your LLC and legally rent it to yourself. But hold your horses; it's not as simple as packing your bags and moving in. You need to tread carefully and take certain measures, such as reporting taxable income, to ensure personal liability protection.
Getting paid as a single-member LLC
This means you withdraw funds from your business for personal use. This is done by simply writing yourself a business check or (if your bank allows) transferring money from your business bank account to your personal account.
LLC members don't need to pay themselves a salary, but doing so helps to separate personal and business profits, which can support your personal liability protection, among other personal benefits.
An owner can withdraw cash from an LLC through salaries, benefits, bonuses, paying bills, and owner perks, among others. In order to withdraw cash from any limited liability company, there must be consent among owners. This statement applies to companies with more than one owner.
Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements.
Can my LLC buy my house? Yes, you can transfer an existing mortgage under your personal name into your LLC.
As the owner, that money may be technically yours, but your personal expenses must come out of personal accounts. When you routinely siphon money out of your business account to pay for personal groceries or mortgage, you don't have an accurate report on the financial health of your company.
Can You Write Off Your Mortgage in an LLC? "Yes, but it is limited and the treatment depends on how the LLC is taxed," says Crystal Stranger, Partner and Chief Operating Officer at Cleer Tax & Bookkeeping.
You can't directly pay for your mortgage through your company's bank account, but you may be able to contribute in other ways – at least in the short term. Taking a higher salary, dividend payments, or even a company loan are a few examples, but beware, as they can come with tax consequences.
Transferring a mortgage from an individual to a Limited Liability Company (LLC) can be a complex process and is generally subject to the terms and conditions set by the mortgage lender.
Paying yourself from a corporate LLC
Shareholders (LLC members) in either an S corporation or a C corporation can't be paid in draws. Instead, they must be hired on as employees, and paid a salary. After that salary, they may take an extra percentage of the corporation's income in the form of dividends.
Does my business need to be financially self-sufficient before becoming an LLC? The short answer is no. There are many businesses who are LLCs from day one. Before they have a penny in revenue coming in.
If your LLC has one owner, you're a single member limited liability company (SMLLC). If you are married, you and your spouse are considered one owner and can elect to be treated as an SMLLC. We require an SMLLC to file Form 568 (coming soon), even though they are considered a disregarded entity for tax purposes.
That's called an owner's draw. You can simply write yourself a check or transfer the money for your business profits from your LLC's business bank account to your personal bank account. Easy as that!
For tax efficiency, most company directors will choose to pay themselves a low salary and take any further money from the company in the form of dividends. This is because dividends are taxed at a lower rate than salary, and avoid national insurance contributions.
Limited Liability Company (LLC)
LLC owners typically report income from their business (along with income from other sources) on their individual 1040s. These individual owners would receive a refund only if their total payments and withholding exceed their total tax liability on the return.
“In my opinion, LLCs are your best option for owning real property, as they blend the best aspects of partnerships and corporations. With an LLC, you don't own the property, the company owns it, protecting you from much liability.”
The Bottom Line. Renting your house can provide a reliable source of income, but make sure you do it legally. Don't try to rent out your house without telling your lender because you may be committing a crime if it goes against your loan's terms.
Con: LLCs come with setup and maintenance fees
LLCs typically have startup fees in most states, so it's worth checking with your state to see how much it will cost you. It's also important to note that some states have an annual fee for maintaining an LLC moving forward.