Putting a rental property in an LLC

Client wants to place a rental property into a single member LLC. He is not currently using the property as a rental property but is living in the house. He will then pay the LLC a monthly rent and the LLC will pay all of the expenses. He wants to report the rental income and expenses on a Schedule E . If he treats the LLC expenses as itemized deductions he will have a limitation due to SALT and a limitation on the mortgage interest deduction since his other personal mortgage debt exceeds 1 million.
The taxpayer is the sole member of the single member LLC . I would think that the LLC expenses are deemed to be personal use and only deductible as itemized expenses ?

He should elect S Corp for the LLC and set a reasonable salary that would justify at least 250 hours so that he gets some QBI out of the profits. Or he can set up a Jersey trust and have his income assigned there, from which he will get a 100 year loan with an enormous balloon payment that can be forgiven when it falls due.

Alternatively, he can listen to you.

If the LLC doesn't elect corporate status (whether S or C), it is a disregarded entity. Therefore, for income tax purposes, you disregard the entity.

What happens if the taxpayer personally owns the house and pays rent to himself? You laugh at him (optional - best if you don't do that out loud) and ignore it, and you put the property tax and mortgage interest on Sch. A, subject to limitations. That's what's going on here with the LLC as a disregarded entity.

Or you can do like SumwunLost said, where you're not dealing with a disregarded entity. I suppose that's all totally legal and all. But it's going to end up increasing the tax. Because he's going to have taxable rental income in the S corp and nondeductible rental expense personally. I suppose you could theoretically create a scenario where you can justify FMV rent being less than the sum of all the deductible expenses (minus the expenses that might have been deductible on Sch. A), creating a loss (and for whatever reason the loss isn't limited by passive rules). Thus creating tax savings over whatever you might be able to get on Sch. A. But that seems dubious.

I realize that I broke one of the forum guidelines with my first paragraph above, but that was intended to be flippant. The reference to a Jersey trust came from a famous (notorious?) tax case that ended in the liquidation of one of Scotland's two biggest football clubs. Well, it was famous in Scotland. I daresay the news didn't travel here.

I think philly should just follow his gut instinct on this one.

lol, I wasn't familiar with the Jersey trust, but I figure the S corp is theoretically doable (or a partnership if he can find another owner such as a spouse), although it wouldn't be QBI and there's all kinds of other problems with making it an S corp although it's legal. But I agree, just put it on Sch. A.

Watching old cable shows?