LLC Initial home purchase

[ciquo]

Hello, 

My wife and I started an LLC in 2019. How should our initial property purchase be handled in form 1065. Are closing costs, taxes and costs related to the purchase, which were drawn from our personal accounts,  be considered capital contributions ? Or should these costs be reported on our standard tax returns?

[DavidS127]

When you contribute money to your LLC partnership, it is considered either a capital contribution or a loan from partner(s).

[Rick19744]

To answer your specific question........."yes" those costs should be considered a capital contribution to your LLC and included in the basis of your property.

[ciquo]

Thanks for the reply. When you say included as the basis of you property, does that mean the property value + plus the money we put in should be included on books ? Partner contributions as for cash and property contributed and I am not clear on how the initial home purchase should be represented in the balance sheet. 

[ThomasM125]

Money you contribute would be added to your partner's equity accounts based on who contributed the money. If the funds were used to purchase or improve real estate, then you would add those expenses to the cost (basis) of the property.

If all you are doing is purchasing real property to improve or hold for later sale, then all of your costs would be allocated to the cost of the property and would not be deducted on your tax return until you sold the property.

[Rick19744]

We appear to be straying from the initial question, so we need to get some things clarified:

1. The $$ spent from your personal accounts should be reflected as a capital contribution to mirror the $$ spent by the member.
2. However, now, it is not clear on whether or not the LLC acquired the property, or whether the property was acquired by you individually and is now being contributed to the LLC?
3. If only the closing costs, et al were paid out of your funds, then "yes" those costs need to be added to the basis of the property. To balance your bookkeeping, you would have a debit to the property and a credit to the respective member's capital contribution account.

[ciquo]

Thank you so much. This is extremely helpful. How would the debit to the property be modeled in Turbotax? I have reviewed the entire rental property section in TT Business and not seeing where I would put this.

[DianeC958]

The debt for the property would show on the balance sheet for the 1065 tax return in the Liabilities and Equity section as a long-term debt.

You may be able to not report the balance sheet depending on the state you live in and if the LLC did not have more than $250,000 in earnings and $1,000,000 in assets at the end of the year.

Link to Can I skip the Balance Sheet