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 ?

  • money.stackexchange.com/questions/12012
    – riya
    Commented May 20, 2019 at 14:58
  • Why do you think it was a mistake to pay off the mortgage on the first house? I don't see anything in the linked question that mentions LLCs at all.
    – chepner
    Commented May 20, 2019 at 15:22
  • 1
    @justin So if old home(owned outright) is valued at $350K, and the new home is valued at $500, to buy new home, I will need to put $100K or so and take a loan of about $400k. And the mortgage interest on this $400 will not be expended to the rent. So I want to form a LLC that will buy the old home for $350K from me and now the interest on this Loan (suppose $300K) should be expense to my LLC and there by reducing my income.
    – riya
    Commented May 20, 2019 at 15:35
  • What does "And the mortgage interest on this $400 will not be expended to the rent." mean? If the second house is your primary residence, the mortgage interest is deductible; the fact that you still own the first house doesn't change that.
    – chepner
    Commented May 20, 2019 at 17:49

1 Answer 1


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.

  • yes interest expense can be a business expense for"sole proprietor for tax purposes, but the issue is "the rental property currently has no mortgage"
    – riya
    Commented May 20, 2019 at 18:50
  • 2
    I thought the question was "should I get a mortgage on my house or get one on my rental?" My point was from a tax standpoint it doesn't matter - you're either going to deduct the interest as a personal expense or a business expense. If that's not what you're asking please clarify the question.
    – D Stanley
    Commented May 20, 2019 at 19:01

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