Loans, Taxes and L.L.C.

General Real Estate Investing
1

Hello to all viewing this post, I have a question about loans, taxes and the L.L.C. If the L.L.C. repays a loan to a member of the L.L.C., can this reduce taxable income?

Example:

An L.L.C. has two members. Member A loans the amount of $10,000 to the L.L.C at an interest rate of 12%. The members agree to split the profits 50/50. If the company makes a $50,000 profit upon the sale of an investment property and the company decides to repay Member A the amount of $10,000 at 12% interest, will the members be taxed on:

  1. the amount of $25,000 paid to each member

or

  1. the amount of $19,400 paid to each member (the amount remaining after Member A receives his $10,000 at 12% interest)
2

The $10,000 principal loan amount and subsequent repayment will not affect the profitability or income tax consequences. It is only a financing transaction.

3

your short answer is #1, except:

the interest is deductible by the LLC, reducing taxable income.

technically this is interest income to sh A, but it will probably fly under the radar.

other operating expenses are deductible as well, possibly reducing the $50k income to some lower value that will be shared 50/50 by the members.

4

Thanks for the information William L. Exeter and McWagner.