collected rent going to to solo 401k ?

[mypostefan]

I am an accidental landlord. I rent out one single property as myself and declare the rent as income on my taxes, after I deduct the mortgage interest and whatever expenses I have with the property. Total rent that I collect per year is in the mid 20k, and the mortgage interest deduction I take is about 5k a year. I am in the 33% tax bracket.

I was wondering if I should start an LLC, pass the house to the LLC, and then the LLC rents the house out. Besides some protections in case of a law suit (the LL in LLC), do you happen to know if I can do any of the following:

1. take the exact same exceptions at tax time (mortgage interest and expenses).

2. start a solo 401k and contribute to it from rent money that I collect. I would contribute all the rent I collect if I could, so nowhere near the 50k+ limit of the solo 401k.

Will it be more tax advantageous to have an LLC?

[mypostefan]

Hm...I may have just answered my own question

See the reply by neoptolemus412 on

http://forum.mrmoneymustache.com/real-estate-and-landlording/solo-401k-for-rental-income/

looks like rent is not considered earned income, thus not eligible

[Zaphod]

No its not, but that means no SS tax either so it aint all bad.

[jfoxcpacfp]

@Zaphod is correct. Rent is considered "passive" income, not "earned" income, which is a requirement of retirement plan contibutions/participation. The only way rent can qualify as earned income is if you are a real estate professional and you don't qualify. This is an area that the IRS scrutinizes, too.