Author Topic: Considerations for forming an LLC (especially MAGI for healthcare)  (Read 835 times)

redrocker

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Hello all,
While this is my first post I've been following the blog awhile and have done a preparatory search for other relevant threads.

My employment status is about to change, and while it's a few years earlier than I'd anticipated I may try to stay semi-retired as  I live quite frugally. My primary source of income will be from two rental houses as well as two apartments on my residence that I also rent out. My initial concern with being unemployed is how I'm going to go about handling healthcare with the ACA. My gross rental income is high ($75k/yr), but my net ($22k/yr) is about a third of that (mortgage on all 3 houses), which puts me in subsidy and cost sharing territory. I assume that my gross rental income figures into the MAGI, not the net. I haven't been able to get that question explicitly answered when looking at healthcare.gov though.

All three of my properties are still in my name. My understanding is that if I put the two full rentals under an LLC, I would be able to only report profit, not gross income. This would be a big step toward managing my MAGI. Feel free to correct me if it wouldn't work that way.

Additionally, I'm curious what steps are recommended from anyone who owns a triplex as their residence, whether that should also be under an LLC.

Looks like there's quite a few readers here who live off of rental incomes so any other tips you might have for sheltering profits and managing expenses are more than welcome.
« Last Edit: July 29, 2015, 12:19:10 PM by redrocker »

forummm

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Re: Considerations for forming an LLC (especially MAGI for healthcare)
« Reply #1 on: July 29, 2015, 12:47:10 PM »
Why don't you fill out the 2014 1040 as though you were using your numbers without the employment income. How does the MAGI calculation work out for you with respect to the premium tax credit section? That's really the only way to know for sure. The 2015 forms should be essentially the same. You can do it without an LLC and with an LLC if that makes any difference. I thought an LLC was just a pass through--so it wouldn't make any difference with respect to taxes. But I could be wrong.

Wile E. Coyote

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Re: Considerations for forming an LLC (especially MAGI for healthcare)
« Reply #2 on: July 29, 2015, 01:55:14 PM »
Putting your real estate into a single member LLC that has not elected to be taxed as a corporation will have no impact at all on your MAGI. It will be disregarded for US federal income tax purposes.

Tremeroy

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Re: Considerations for forming an LLC (especially MAGI for healthcare)
« Reply #3 on: July 29, 2015, 02:26:37 PM »
Putting your real estate into a single member LLC that has not elected to be taxed as a corporation will have no impact at all on your MAGI. It will be disregarded for US federal income tax purposes.

^This is correct.

Here is the MAGI calculation:

AGI (1040 line 38) + Tax-exempt interest (1040 line 8b) + Foreign-earned income (2555 lines 45 & 50) + Non-taxable Social Security payments (1040 line 20a - line 20b)

Your AGI on line 38 will include your Rental Real Estate income from Schedule E. Schedule E allows you to deduct mortgage interest attributable to the real estate on line 12. You should not have a problem.

redrocker

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Re: Considerations for forming an LLC (especially MAGI for healthcare)
« Reply #4 on: July 29, 2015, 02:44:32 PM »

Here is the MAGI calculation:

AGI (1040 line 38) + Tax-exempt interest (1040 line 8b) + Foreign-earned income (2555 lines 45 & 50) + Non-taxable Social Security payments (1040 line 20a - line 20b)

Your AGI on line 38 will include your Rental Real Estate income from Schedule E. Schedule E allows you to deduct mortgage interest attributable to the real estate on line 12. You should not have a problem.

Thanks. I should've realized that. I've been using TurboTax for my residence so far and I just bought the two rentals at the beginning of the year so I missed that Schedule E would take into account the big expenses of interest, property tax, and insurance.