Discussion:Multi member llcs and real estate
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Discussion Forum Index --> Tax Questions --> Multi member llcs and real estate
| 22 August 2007 | |
| Are all members of a multi member llc treated as limited partners?
The llc contains rental property, and I was wondering about deductibility of passive losses if there are four members, and two of the four do not actively participate in any way? | |
| 22 August 2007 | |
| not necessarily, those active in the management are treated as general partners | |
| 22 August 2007 | |
| I have a 4 member LLC owning several rentals. One of the members manages the day to day activities and the other three agree to pay him a fixed monthly amount for his time and work. Is the payment treated as guaranteed payment? For this managing member, is it passive or ordinary income? For the other three members, how is the expense treated, passive or ordinary? Thank you. | |
| 22 August 2007 | |
| Sunny, I would treat his "compensation" as a guaranteed payment, and that portion would be ordinary income subject to SE tax. His portion of the rental income would be passive (as all rentals that are not a trade or business are), but he may qualify as a real estate professional.
Alternatively, he could be assigned a higher percentage of the profit (let's say for example, that he got 31% and the other 3 got 23% each) in which case I wouldn't call it a guaranteed payment, it wouldn't be subject to SE tax, it would all be passive. What to do if there is no profit? Give him 31% of the loss? | |
| 22 August 2007 | |
| Thanks Kevin. To be a RE professional, the same rule for individual (50% services and 750 hrs) applies to this particular member while the other three can remain passive investors, correct?
Also, this member incurs costs on behalf of the LLC and the Operating Agreement does not mention whether he has the right to get reimbursed by the LLC or not, how does he take the deduction, itemized subject to 2% or above the line? Thanks again. | |
TheTinCook (talk|edits) said: | 22 August 2007 |
| That sounds like Unreimbursed Partnership Expenses and would be deductable on Sch E. | |
| 22 August 2007 | |
| Thanks again, TTC. My LLC and Partnership Answer Book says if the member has the right to get reimbursed but forgoes the right, then he can only itemize it, subject to 2%. If he does not have the right to get reimbursed, he takes the above the line deduction, on Sch SE, I presume. I guess, for practical purposes, most people would claim on Sch E, right? | |
TheTinCook (talk|edits) said: | 23 August 2007 |
| It depends on the partnership agreement. If the agreement required you to pay for these expenses and you didn't get reimbursed you can do it on Sch E. | |
| 23 August 2007 | |
| the "real estate professional" test is stricter than the active participation test. I'm sure if you do a search you will find it discussed. | |
| 23 August 2007 | |
| Real Estate Professional here it is | |
