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Multi-member LLC owns title to personal residence

peauff
Level 3

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?

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7 Replies 7
IRonMaN
Level 15

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

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peauff
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?

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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

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peauff
Level 3

There will never be rental amounts paid to the LLC by themselves or anyone else.  It is not a rental property.  The clients use the property as their personal residence.  The only income would eventually be a function of selling the property.

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qbteachmt
Level 15

"The only income would eventually be a function of selling the property."

So now you would be claiming this is Investment. And of course, they just forfeited their potential tax exclusion for the gain from appreciation and it turns into taxable income.

You never stated "family lake home or vacation home" as "family LLC" and you keep stating personal residence for 2 of the 4 members. You don't get to let your LLC treat your personal life costs as tax deductible. You don't get to pretend to be in business to write off expenses. If there is no activity to report, at least for Fed, there is nothing to report.

This whole things smells like fraud. Did you really want to be involved in this professionally?

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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-ow...

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.

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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?


ex-AllStar