AboutJonathan Dever, Esq Expertise Real Estate Law, Buying Selling, Investor, all types of acquring property through "creative techniques" and fraud avoidance
Experience Super Lawyer by Law and Politics for the last three years, part of over 900 transactions in the last 6 years
Organizations Ohio Bar Assn
Greene County Bar Assn
Champaign County Bar Assn
Publications Personal web site and web articles
Education/Credentials JD - Capital University
MA - IU of Penn
BA - U of Cincinnati
Awards and Honors Super Lawyer 2005, 2006, 2007
Who is Who, Lawyers 2006, 2007
Expert: Jonathan Dever, Esq Date: 6/29/2008 Subject: Real Estate Ownership LLC
Question I have a rental property that I have in a single member LLC (Myself and my spouse) that runs through my personal tax return on a schedule E. I have the LLC in place for liability protection, so run all the income/expenses through the business. I have had it in the LLC for about 2 years. It currently generates about $500 per month of cash flow after all monthly expenses. What is the correct way of taking a monthly income of $500 from the LLC without compromising the integrity of the LLC formation. I also have to add some cash $25k from my personal account for improvements that I do not forsee the LLC being able to recoup until I sell the property. What is the best way to handle these type of transactions without compromising the integrity of the LLC for liability protection?
Thanks!
Answer The income from the LLC should come to you via a K1 at the end of the year. If you are are putting the money on a schedule on your personal return, you or your accountant is not running the LLC as a separate entity from a tax perspective.
The LLC should have its own set of books, show profits and losses, and that number is then K1ed to the members of the entity.
If you loaned $25k to the LLC, do you have a note and a mortgage on the LLC property? If you do, the LLC can simply make mortgage payments to you. You then have interest income which is not ordinary income for federal tax purposes. In this manner, you can repay yourself over time and the LLC will have zero income at the end of the year. IT will reduce your taxable income, put the $500.00 back into your pocket, and reduce the debt on the property until you sell it. At the time of sale you can 1031 or pay the capital gains tax, which is considerably less than ordinary income tax.
