Discussion:LLC Investment property
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Discussion Forum Index --> Tax Questions --> LLC Investment property
| 12 April 2009 | |
| Need some guidance on how to report this. Client owns 3 houses: one is primary residence, second is former primary residence, and third is investment/rental property. The second and third houses have never been rented and have been under renovation and are not available for rent. Client keeps changing mind about intention of properties, at first he wanted to rent them out and now he is planning on selling them, but you never know, he could end up gifting to children. Prior to 2008, carrying charges such as property taxes and mortgage interest were reported on Schedule A. During 2008, the client placed the second and third properties into a single member LLC (primary for liability protection of their primary residence in the event someone slips & falls on the other properties). So, how would you report the properties for 2008? Would you report on Schedule E to establish the existence of the LLC? There's no rental income and the only expenses are property taxes, mortgage interest and renovation costs. I've come to the conclusion based upon reading other threads that the renovation costs should be capitalized, but am up in the air about how to report the property taxes and mortgage interest. The former primary residence is still used as a second home occasionally. Any advice would be appreciated. | |
consumer post removed
| 12 April 2009 | |
| I would take the mortgage interest and taxes on Sch. A until the client either actually starts renting the property (or holds them available for rent) or he disposes of the property. You could also elect under ยง266 to capitalize the interest and taxes until the client makes up his mind. You may find this to be a better result for the client in certain circumstances. | |
| 12 April 2009 | |
| can't take 3 mtgs on Sch A unless 1 of them is investment interest. | |
| 13 April 2009 | |
| Thanks. After reviewing whether to take expenses on Sch A, I'm leaning towards making the election to capitalize instead (yet to be discussed with the client). I'm using Proseries and there's an IRC Regulation 1.266-1 Election to Capitalize Carrying Charges worksheet which asks for a description, project, and carrying charge amount. Does the election just apply to mortgage interest and property taxes or can you also include as carrying charges the insurance & utilities? Do you also note the renovation costs when taking the election? | |
Harry Boscoe (talk|edits) said: | 13 April 2009 |
| Looks to me like the LLC is totally [as my GF always says] a red herring, since it's certainly going to be a disregarded entity and doesn't even get to file its own return. I think the only question is what to do with the interest expense on the "investment" property. The easiest solution is to claim that interest as "investment interest" on Form 4952 and if - to the extent - it's not deductible (if there's not enough net investment income to allow the deduction) then carry the deduction forward.
The election under Reg Sec 1.266 is more complicated than anyone will admit to, and it's an unnecessary waste of your professional time, today and tomorrow, to be reading those regs. If anyone else thinks they can explain the Reg Sec 1.266 election, completely, in less than 250 words, go right ahead, but I'm warning the rest of us not to waste our time reading whatever you write about that election. Section 266 and the election in the regs has *never* been explained completely and accurately, by anyone, anywhere. Too many conditions, too many ambiguities, too many "but what if's". | |
