September 15, 2016

What Tax Forms For An LLC Are Used For Rental Investment Property?

We have a 10 member LLC used for Investments.
We file the 1065, with K-1’s sent out to each member.

This year, 2 members got a Loan, purchased a Rental House as an Investment.

Question
1. What Tax forms do we need to use to figure their portion of the LLC?

2. What Tax Forms would they need to use in their own Personal Tax Returns?

I have really enjoyed your Posts… I hope this one isn’t over the Edge.
Be Blessed Investors,

– Randall, Iowa

Answer

Your multi-member LLC is taxed as a partnership.

Form 1065–which you have already been using–is the proper form for your partnership’s tax returns.

The individual LLC members will use the K-1 they receive to record their income (or loss) on their personal tax returns.

Is this new rental house the member’s purchased part of the LLC, or a side venture outside the 10 member LLC?

If it’s outside the LLC, and they own it in their own name, then it would be recorded on Schedule C. Schedule C is part of your personal 1040 return.

If the investment was inside the LLC, then the members need to decide among themselves how to allocate income, expenses, profits/losses, and distributions.

LLC law is very flexible when it comes to these decisions, which is both good and bad. It’s good because you can pretty much devise any profit sharing scheme you want. It’s bad because you have to make these decisions, and these decisions have tax and other consequences.

When it comes to multi-member LLCs with complicated tax issues involving loans to the LLC, uneven contributions of property from a subset of members, and so forth, there’s one piece of advise to give:

See an attorney.

I know you’d like to get your answer from “some guy on the internet”, but trust me, you don’t 🙂

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