Recently I formed an LLC in October 2008. I purchased a home in November to renovate/sell. For preparing taxes where would I show the purchase of home,renovation costs and utilities. As well as can i claim all that as loss?
Breakdown:
Personal Loan to business banking account: $75,000
Purchased home: $38,000
Renovation: $30,000
Utilities: $1,000
How is the LLC taxed?
Looking to probably tax as an S corp. Its an LLC Partnership. Any suggestions?
Then you report everything on form 1065 and send a K-1 to all the partners, who then report it on their own returns.
Whether to go s-corp or partnership is a discussion between you and your tax adviser. It’s a real shame the gurus and document mills never touch on the tax issues. They hype up the LLC and never say anything about the downside.
How you choose to treat your LLC for tax purposes is a separate issue. I don’t think the answer to that question changes the answer to your question about your 2008 “expenses” and their deductibility.
You bought the property to resell for profit. Your intent is that of a dealer to real estate. When you sell the property, the sale will be taxed as a dealer disposition.
You say you purchased the home and rehabbed for a total cost of $68K. These costs are not expensed. They are capital costs that form the cost basis for the property. When you sell the property, the difference between your net sales proceeds and the cost basis will be your taxable profit or taxable loss. Until you sell the property, you just have to carry the purchase cost and rehab cost on your books as a capital asset.
For tax reporting purposes, dealer realty is considered acquired in the year it is sold. All your holding costs such as utilities, property taxes, insurance, upkeep, and maintenance are accrued – not expensed – until the property is sold. When the property is sold, your holding costs will reduce your taxable profit.
The loan to the LLC is the only item you mentioned that can be expensed by your LLC. If the LLC is paying you any interest on the loan, then the amount of interest actually paid to you is a business interest expense. However, the interest actually paid to you is also taxable income on your personal 1040, so the business expense and your interest income may cancel each other out on your personal tax return.
Consult your own tax professional or CPA for specific details as they may apply to your circumstances.