My partner and I (unmarried) recently bought a house in Seattle, and are planning to rent out the finished basement for extra income using Airbnb. The city requires us to register for a business license, which will be in one name only, unless we choose to form a partnership or LLC. We are trying to decide whose name it should be in (and who should receive the income from Airbnb). We are both on the title to the house, and the mortgage is in both names.
Here is our rough financial situation. (We both had a one-time stock vesting event from an employer this year, which will not repeat in future years.)
| Me | My partner | |
|---|---|---|
| Annual base income from full-time employment | $225,000 | $175,000 |
| 2022 income from stock grant (one-time) | $575,000 | $325,000 |
| Expected future annual income from stock grants | None | $60,000 |
| Monthly payments towards mortgage | $4600 | $2300 |
| Monthly expenses | $2000 | $2000 |
We don’t have much in the way of deductions and have both been using the standard deduction.
Of the mortgage payments, about $3000/month is currently going towards interest. We are first time homeowners so should be able to deduct interest paid.
We expect that we can get around $3000/month of rental income. Who should make this income & report it on their taxes? Would there any reason for us to bother forming a partnership or LLC for this purpose?
- It seems like the person who normally makes more income could benefit more from possible business expense deductions.
- …on the other hand, the person who normally makes less income from employment might be taxed less on the additional rental income.
We welcome any advice as well as additional questions that could help clarify the situation!
