Multi-member LLC owns title to personal residence

Forum|Forum|5 years ago
March 19, 2021
3 replies
47 views

I have a client who purchased a home in 2020, then transferred title to a multi-member LLC made up of four individuals, two of which are himself and his wife. For tax purposes, I believe that any deductible interest and taxes paid at closing, as well as 1098 interest on the property at 12/31/20 may be reportable by the Partnership, which would then pass through these deductions to the individual members for tax purposes based upon their LLC ownership. Meaning a Partnership return would also have to be filed. Is there another way to treat this transaction as of 12/31/20?

Lacerte Tax

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IRonMaN

Level 15

Is there an actual business purpose for the LLC owning the home?

Slava Ukraini!

P

peauffAuthor

Level 3

Yes, that is another issue that the IRS will have a problem with eventually, no business function, no income generated until/unless the property is sold. Also issues with personal residence capital gain exclusion. But is there a way to capture the 2020 expenses with respect to itemized deductions?

qbteachmt

Level 15

"eventually, no business function, no income generated until/unless the property is sold."

You want help determining which expenses you can put on the 1065, which is not really operational and has no income, and then pass it through to the very people that are trying to avoid ownership of their own residence, and are not paying rent, or paying rent to their own entity? And you think that won't be a problem until it sells?

Rental income is taxable, and self-rental income has limitations for expenses, so that is either nondeductible losses or taxable income.

I think you need to read up on:

Self-rental

Passive loss

Don't yell at us; we're volunteers

qbteachmt

Level 15

"which would then pass through these deductions to the individual members for tax purposes"

Sure, and then they pay themselves rent through the LLC. Oh wait; this is exactly like this other topic:

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/tax-treatment-of-llc-owned-building-where-2-partners-also-live/00/142819

I think someone is selling "get rich quick in real estate" courses. Without understanding how some of the is disallowed, and some of this is generating your own funds as taxable to yourself.

Don't yell at us; we're volunteers

sjrcpa

Level 15

The only thing I see potentially deductible by the members is their share of the real estate taxes. But if they are already over the $10K SALT limit, no dice.

They can't deduct the interest because it does not meet the requirements for home mortgage - i.e. they do not own the home secured by the mortgage. The LLC owns it.

Who are the other 2 members? The minor children?

The more I know the more I don’t know.

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