Husband & Wife LLC Rental Purchase

[rentalllc]

My wife and I are planning to loan ourselves $250,000 to create an LLC to purchase a rental property.  We plan to fund the LLC account with the entire loan and purchase the property and all expenses from there to cover what we need.

When we start making a profit on the rental, do we pay that money from the LLC back to ourselves personally and claim it as a loan repayment?  Is the loan repayment tax free to us and a write-off for the LLC?

I'm reading that there is a $5,000 deduction for the first year of a start-up. Is that similar to a personal standard deduction but for a business?   I'm also reading that the loan needs to be amortized over 180 months.  Does that mean $5000 for the first year, then divide $245,000 by 14 years?

Any help on trying to wrap my brain around this concept would be helpful.

[Mike9241]

if the LLC does not elect corporation taxation (unadvisable for rental real estate), 

the loan would be disregarded for income tax and gift tax purposes.

in a community property state each would report their share of the profit or loss in a separate column on schedule E. However, if you provide “substantial services” to short-term renters, the IRS says that the rental activity should be reported on Schedule C, and that the property owner must pay self-employment taxes on the income.

In non-community property states, you would file a partnership return because an LLC owned by both spouses does not qualify for the Qualified Joint Venture election. On the partnership return, you can treat the loan as such or treat it as a contribution to partners' capital (the way I would treat it). Again there are no tax consequences from making or repaying the loan. it is neither income to the partnership nor a deductible expense. What it does do is give you a tax basis to deduct losses.

start-up costs do not include the loan. amortization, if needed, starts with the month the activity begins which would normally be the month you put it out for rental

they include

1. survey of potential markets
2. advertising the availability of the property for rental
3. consulting or other professional fees paid in connection with starting this activity 
4. other pre-rental expenses

if they are not more than $50,000 you can expense the first $5,000 and amortize any remainder over 180 months 

if over $50,000 the first $5,000 is reduced $ for $ for the excess but not below zero. the balance is amortized over 180 months.  

they are reported on the tax form used to report the rental activity.