Interest income and expense from a loan to LLC

Forum|Forum|6 years ago
July 4, 2020
1 reply
8 views

Scenario: I took out a $100K personal loan at 4% and lent it to my LLC at 5% to purchase a rental property. My LLC is taxed as a S corp. So at the end of year, my LLC will pay $5K interest to me. I have $4K interest expense.

1. Should I construct the loan as a mortgage or a regular loan?

2. Where do I report the $5K income in my personal return?

3. Where do I report the $4K expense in my personal return?

Critter-3

Level 15

1. Should I construct the loan as a mortgage or a regular loan? If this is a "signature" loan not based on a property it is considered a personal loan.

2. Where do I report the $5K income in my personal return? On the Sch B ... it is interest income.

3. Where do I report the $4K expense in my personal return? Nowhere ... personal interest is not deductible. The S-corp should have taken out the loan and you could have guaranteed it that is not how you have the current loan set up.

silvertonbookAuthor

Level 2

I can make the loan based on a property, which is a mortgage from a private lender, which is me.

Is it easy to get a business loan with personal guarantee?

Critter-3

Level 15

Same thing ... you would simply be collecting taxable interest for the loan. The fact that you took out a loan to make the loan is still a personal situation which is not deductible since this is not based on your personal residence or second home. You don't own the rental, the S-corp does and they will pay you the interest (which is deducted on the corp return) AND take depreciation on the rental. YOU do not get to deduct the interest again or depreciate a home you personally don't own. You need to think of the Corp as a separate non breathing non person entity and not as another part of you.