Tax Implication Of New LLC
Would love any help on the following...purchasing a rental property. Attorney suggested as LLC. Bank wants to roll new property loan and current personal residence loan into one new loan for the LLC, but guaranteed by personal property. Will this eliminate my ability to deduct interest paid on my personal income tax schedule A? In other words, if the "LLC" which is "me" pays the loan payment, have I just lost my personal tax deduction? Any other info. regarding would be greatly appreciated.
Chet,
You have mentioned this several times now- we are all dying to hear what the final outcome was...
Chris
The audit is the end of the month. I will certainly post the out come.
Ordinarily, property taxes and mortgage interest are allowable business deductions even if the property is not in service as a rental. I have no idea of you are allowed to take an adjustment to basis if you failed to take the allowable business deductions.
Ordinarily, a deed in lieu of foreclosure is deemed to be a sale at the defaulted loan balance.
Let us know how your tax advisor answers your question.
Quote:
On 2008-07-17 10:52, NewKidInTown3 wrote:
Ordinarily, property taxes and mortgage interest are allowable business deductions even if the property is not in service as a rental. I have no idea of you are allowed to take an adjustment to basis if you failed to take the allowable business deductions.
Ordinarily, a deed in lieu of foreclosure is deemed to be a sale at the defaulted loan balance.
Let us know how your tax advisor answers your question.
Thank you so much NewKid - I was hoping that you would offer your input.
You mentioned that ordinarily property taxes and mortgage interest are allowable business deductions even though the property is not in service as a rental. Are you meaning on Schedule E, or Schedule A?
Looks like I need to reinvestigate this part of the equation.
You said you had an LLC.which I assume is a partnership because you keep using "we" and "our" in your discussion.
A partnership should be filing a partnership return (Form 1065) with the IRS each year. You claim your business deductions on your partnership return. Your share of the net income or loss from your partnership return is reported to you on Schedule K-1 (1065) and is carried over to your personal 1040.
Consult your CPA or tax advisor for specific details.[ Edited by NewKidInTown3 on Date 07/17/2008 ]
Quote:
On 2008-07-17 18:46, fbprop wrote:
Keeping in mind that K-1 items typically are carried over to the 1040 the same as if there was no partnership involved. ... So in the end, items usually end up in the same place on the 1040.
Not necessarily true. For example, your partnership LLC did not place a rental property in service but probably incurred expenses directly related to the property for mortgage interest, property taxes, utilities, maybe HOA fees, and some rehab costs.
I would venture to say that most of your expenses would be reported to you in box 2 of your partnership K-1. In turn, this amount is carried over to Schedule E, page 2 (without breaking out the individual expense categories) and then is rolled up into the amount reported on line 17 of your 1040.
That said, I think you should continue this discussion with your own tax advisor and/or CPA.
Quote:
On 2008-08-13 18:12, boatboy wrote:
What the hell is he referring to?
Maybe he is under the mistaken impression that your deal will be a Capital Gain rather than ordinary income???? That is my guess at least ...
Are their referring to "wages" (paid by the hour), or capital gains (paid by job)?
This is our first house together and we both have full time jobs.
I figure after we split profits it will be just taxed as ordinary income....
.... when would it be capital gains?
It was my impression that whatever I make on this house I can just put into my bank account and get taxed on by my ordinary income.
Will I be hit with self-employment tax considering this is our first house together and we both have full time jobs?
Or are you hit with self employment tax only if you do this full time?
Thanks for the help so far guys!
cj,
The short term capital gain tax rate is the same as the ordinary income tax rate.
I challenged your assertion that a short term capital gain is taxed AS ordinary income.
There is a difference between the two statements.
[ Edited by NewKidInTown3 on Date 08/16/2008 ]
New Kid is correct. Being taxed at the same rate as ordinary income is not the same as being ordinary income, for example, STCG do not generate SE/SS tax, while ordinary income does.
In general, if the transaction described here ends up being treated as ordinary income ("dealer" transaction), there is no difference between allocating profit to a partner or issuing 1099, same kind of income. If transaction = STCG, difference would be no SE/SS tax on STCG allocated to each partner, unlike 1099.
John Hyre
Not an easy question to answer because foreign tax systems differ from US model (thankfully). Basics: You should get a loss for foreign property for US tax purposes, same as if the property generated a loss in US. Caveats: Foreign tax system (and corresponding credits against US tax) or treaty with US may alter that treatment. Also, while treatment of rentals overseas will be similar, it will be identical for US tax purposes on important details.....for example, 1031 does not work between US & foreign property, must be US for US or foreign for foreign. Lots of details to contemplate.......
John Hyre