Can I put real estate on a a K-1 for an LLC with 2 partners if the house is not titled in the LLC name but titled in the 2 partners names?

[girlinburbstax]

I have a house, titled with 2 partners names.  I have an LLC that was formed to build the house.  The title has the 2 partners names on it and not the LLC.  Is there any way for me to run the house and costs and taxes through the LLC the way it is titled now?  Do I have to put the title in the LLC to do the Taxes through it.  If I don't transfer title to the LLC then how do I do the taxes?

[girlinburbstax]

So just to be clear The house is not titled ON THE DEED  in the name of the LLC, IT is titled on the DEED in the name of the 2 individuals as a personal loan to the LLC.  However, the LLC was formed to build houses.  I can still run the bills, and all the taxes and depreciation and the profit/loss thru the LLC?

[KrisD15]

No, the LLC cannot claim depreciation if it does not own the property. 

It is possible for the LLC to lease the house. A "Gross Lease" or "Full Service Lease" would make the LLC responsible for paying property tax, in which case it could be claimed as a business expense. The owner(s) of the house would then need to file Schedule E and claim the rent income and the depreciation. 

[Carl]

Here's the bottom line.

Rental property is reported on SCH E *no* *matter* *what*.

So if the property is in a multi-member LLC that files a 1065 partnership return, all the rental stuff is still reported on SCH E as a physical part of that 1065 Partnership return. Period. End of story.

Now you do have my curiosity piqued here. So I've a few questions for you if you don't mind. I'd really appreciate it. I'd also like to know what state you're in. (I'm in FL)

I have an LLC that was formed to build the house.

Why? I'd like to understand your reasoning for establishing a multi-member LLC for this, instead of taking the much simpler and significantly cheaper path of just forming a simple partnership.  How was forming an LLC more beneficial to you, than just a simple partnership? It doesn't change the fact that the two of you were both still equally liable for the construction loan - LLC or not. In other words, the LLC provided you absolutely no protection if there was a default on the loan.

The house is not titled ON THE DEED in the name of the LLC,

So this is why I asked why you formed an LLC. The LLC owns nothing and never has owned anything.

IT is titled on the DEED in the name of the 2 individuals as a personal loan to the LLC.

I seriously doubt the deed states anything about any personal loan. The only entities listed on the deed are the two property owners and they're listd as owners. Additionally, the construction loan lender/mortgage lender is listed as the lien holder. That's pretty much it unless there's details you've not made us aware of.

However, the LLC was formed to build houses. I can still run the bills, and all the taxes and depreciation and the profit/loss thru the LLC?

Sure you can. Just keep in mind that everything is reported on SCH E of that 1065 partnership return. As for what you can claim pertaining to the loan, it depends on if you converted the construction loan to a mortgage, or if you completely refinanced the property to pay off the construction loan.

As I'm sure you're aware, the LLC/Partnership will issue each member a K-1 which each member will need in order to complete their personal 1040 tax return. All information on the K-1 pertaining to the rental property will appear on page 2 of the SCH E that is a part of their personal 1040 tax return.

[Rick19744]

STOP.

Half of the responses here are incorrect based on your facts.

As noted by @KrisD15, if the LLC does not hold title to the house, then any expenses, depreciation, income, etc., is NOT reported on the LLC form 1065.

Until, and if, the LLC gains title to the house, the partners must individually report all income and expense on their individual tax return Sch E.

It is possible to transfer the title to the LLC, but you will need professional assistance here.  If the house does get titled in the LLC name, then it is treated as a contribution to capital.  There will be special tracking of depreciation as the cost and FMV will differ and the IRS wants this tracked.  At the time of transfer, there could be what is known as built-in gain.  The K-1 has a specific question that is asked related to this.

So for now, only the individuals report the activity on their individual return.  Should you want to transfer title, I recommend you get some professional tax advice.

[Anonymous_]

I agree with @Rick19744. 

Just as an aside, it should be noted that partnerships/multi-member LLCs filing Form 1065 do NOT use Schedule E to report income and expenses from rental real estate; those entities use Form 8825.

[girlinburbstax]

THis is not a rental property, it is a house that was built only to sell.  So forget the rental property income etc.

The LLC was formed to build houses.  However, the LLC had originally no history or track record so the bank asked for the credit to come from the partners which is how the DEED came to put just the owners on the original purchase of the land and subsequent building of the property.  

The Building loan was converted to a mortgage currently being paid by one of the partners.

For the purpose of doing taxes, given that the property is deeded to 2 individuals who are the partners of the LLC, Should the taxes just be split without going through the LLC?  

[Carl]

Wow! Thanks for clarifying the LLC. This has become a real cluster now! I would highly advise you forget about using any flavor/version of Turbotax for this endeavor, and seek professional help. Generally, since you are "in the business" of building/buying/selling real estate, the property would be treated as inventory for the business. Only problem is, the business does not own it. It's not just a simple matter of the two owners making their respective share a capital contribution to the business either, since the intent is to sell it. The major reason (among others) is because the business can not sell that which it does not own.  Wouldn't be that big an issue if it was a partnership instead of an LLC.

You 'really' need professional help, as there are other legal ramifications you're obviously not aware of. Even I myself am not aware of all of them. But I am aware enough to know this is not as simple as you may think. Please seek professional help for this.

[Riemer]

The form 1065 uses the 8825 but the K1 issued by the partnership/LLC will go on Sch E of the 1040.  Also, couldn't the owners and the LLC have a written agreement to transfer the property to the LLC.  An unrecorded agreement which means if the LLC is supposed to protect the owners from liability, it probably fails why the did it but does tax code require recorded deeds.  Seems my business law professor just said property transactions needed to be in writing.  We don't give legal advise but we'd let them know that for the liability shift to be effective they should record the property transfer.