After lots of reading, and recognizing there are great experts in the community, I have 4 questions:
- Can LLC Partner Loss/Profit percentages be adjusted from year-to-year? I think the answer is yes.
- Can loss and profit percentages be different? Person X and Y share Losses equally at 50%, but Profit is split, person X receives 60% and person Y receives 40%.
- Question 3 is below at the end of the 2nd paragraph.
- Is there a carryover for losses?
Background: An LLC was created in late 2020, for a Rental property. There are 2 partners, Alex and Betty (siblings). Alex is the Managing Member and is most active in the LLC, but does not exceed 100 hrs/yr. He also has more financial flexibility than Betty, so he has loaned money to the LLC twice. Initially in Oct 2020 he loaned $2,500, for establishing the business bank account, and later use in Dec 2020 for expenses related to preparing the rental unit. The LLC officially began business in Jan 2021, when income began being received and there were several other expenses. Also at this time, Alex provided another loan of $11,200. Each loan is documented through a Promissory note covering repayment schedule and interest rate. The Partner Agreement specifies ownership percentages but did/does not stipulate owner profit or loss percentages. It also states that due to the different partner financial circumstances, any profit/loss imbalances that occur during the partnership will be rectified in the event/time of property sale or dissolution of the partnership.
Alex prioritized loan re-payments over receiving profits. Based on this and the details of the loans, in 2021, 76% of the LLC distribution/allocation was paid to Alex as loan repayment and 24% went to Betty. From my research, I believe that the loan repayment is not considered a member allocation. Therefore, 2021 member allocations were Betty - 100% and Alex - 0%. Is this the correct interpretation/allocation?
If this is correct, in 2022 Alex is expected again to receive 0%, with Betty at 100% of the profit; funds/proceeds allocation is expected with 52% to finish repaying the loans, and 48% to Betty. For 2023 and beyond it should be an even 50-50.
Finally, as the property had several debts and expenses there was a Net Loss in 2021 of $2,400. The plan was that both Alex and Betty would share losses at 50% each. Will Alex be able to benefit from this or apply it in 2021, 2022 or 2023?
Thank you in advance for your patience and insights.
