Taxes On Cash Flow?
I will be renting out my single family home next month. There will be a cash flow of $300 each month after ALL expenses. Do I have to pay tax on that cash flow? If so, what I if i started an LLC and put the house in the LLC, then payed the LLC to "manage" the property?
This is a short answer to your questions and you should probably consult a knowledgable tax person, particularly with regard to setting up business entities.
Net income (or loss) from rental activities is passive income and is taxable at the ordinary income marginal tax rates. Expenses include depreciation which very often result in a net loss. Undeer current tax laws the depreciation is recaptured at the time of sale at a Federal Rate of 25%. This means that the capital gain has two components --depreciation and appreciation. The appreciation is taxed at long term capital gains rate (with ownership duration over one year) which for many has a Federal Rate of 15%.
I am not sure there are any advantages in having an LLC do your management since LLCs are pass through entities and you will be paying taxes on the gains or losses. A C-corp might work so some income can be transferred from you the the corporation which pays its own taxes at a lower rate.