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collected rent going to to solo 401k ?

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  • collected rent going to to solo 401k ?

    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?

  • #2
    Hm...I may have just answered my own question

    See the reply by neoptolemus412 on

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


    • #3
      No its not, but that means no SS tax either so it aint all bad.


      • #4
        WCICON24 EarlyBird
        @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.
        My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
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