I have 2 other partners and we have an LLC together. At the present we own 3 rental properties. We are going to quit claim deed them in to the LLC. ONe of the properties has one of the partners mortgage in his name. The other 2 have one of the partners mortgage in theri name. Expenses will be coming out of the LLC business bank account. We are splitting everything up equally. 33% each as far as profits go. How does that pass through to our personal income taxes as far as tax write offs? Everything will be splits in thirds as far as deductions right?
Thanks for the help.
forgot to mention we are doing mostly buy rehab and rent, maybe an occasional flip but we are mostly looking for a high steady rental income so that is our main goal.
At the end of the tax year, the LLC (managing partner) prepares IRS Form 1065 for the partnership tax return. Along with the 1065, a Schedule K-1 is prepared for each partner. The Schedule K-1 details the partner’s share of the LLC income that is to be reported on that partner’s individual 1040.
dwj469:
What type of LLC is this? Will you file 1120S, 1120, or 1065?
The short answer to your question is yes, each member will receive a K-1 showing 33% of the net income.
You may want to create two corporations to get by the IRS Dealer issue.
Remember a corporation is a separate “person” under the law, and therefore, if it is properly organized and managed, it should protect its owners from any personal liability for corporate debts and obligations and from claims against the corporation. Also, the purpose for which the corporation is formed determines the “Quick Turn Investor” status. In other words, you can be both a “Quick Turn Investor” and a Regular Investor at the same time.
See http://www.instantinc.us/pdf%20files/Incorporation%20Newsletter-1.pdf
for some basic incorporation information
dwj469,
Since your partnership is invested in rental property only at the moment, there is no dealer issue.
thanks for the replies. Yes we are primarily into rentals of course we may sell a rehab here and there but overall our goal is to buy and hold
you should also realize that each of you are not making equal contributions of property to the LLC, but you are sharing in the LLC profits equally. If I was contributing 2/3 of the property value (my assets that I am at risk to lose) I would not want a measley 33% of the profit. my share of the risk is then not proportionate to my share of the profit.
Also note, a quitclaim does not transfer property, you need a warranty deed for that.
thanks for the thoughts. Quit claim deeding the property into the name of the LLC does not put the title into the LLC’s name?
No, a quit claim does just what it say…it “quits” any “claim” that you have in a property. Anybody can quit claim any property…I can do a quit claim on your private residence. It doesn’t mean anything just that I have given up any legal claim that I may have to a property…
You want to to a Warranty Deed…just as Mark has indicated.
Keith
yes so I quit claim it into my llc? What doea a warrant ydeed do?
A quit claim deed and a warranty deed can both accomplish the same thing - transfer title. However, a quit claim deed breaks the chain of warranty you bought when you purchased owner’s title insurance. A quit claim deed relieves your title insurer from any liability in the event you lose the property when an undiscovered defect in the prior chain of title is successfully upheld
Use a warranty deed instead of a quit claim deed.
ok thanks now I understand.