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Level 2
March 3, 2022
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Form 1065 Multi-member LLC Question

  • March 3, 2022
  • 2 replies
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Hello All,

 

First time working through my form 1065 for a multi-member llc that some friends and I formed last year.  We're using the LLC to purchase real estate, but recorded no income in 2021 since we didn't close until early January 2022.  We do however have expenses related to formation/start-up and closing costs (inspection).  

 

I'm getting stuck on where to enter the expenses - TT Business wants a property associated with this expense but we didn't take ownership until 2022.  

 

Do I just need to change our business purpose from rental real estate or can I enter the address of the property?

A little lost, any help is certainly appreciated.

Best answer by PatriciaV

Since you had no Rental Real Estate during the 2021 tax year, you have no expenses to report.

Any pre-paid closing costs related to acquiring the rental property will be added to the cost basis of the property in the tax year of the closing. These are not expenses.

 

The startup/organizational costs to set up your business are either business expenses or amortized capital assets. You'll find this section in TurboTax Business under Federal Taxes >> Deductions >> Startup or Organizational costs. Be sure you indicated under Business Info that your business began in 2021.

 

Per IRS Pub 535 Business Start-Up and Organizational Costs:

 

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

 

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.

 

You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins.

2 replies

PatriciaV
PatriciaVAnswer
Level 15
March 3, 2022

Since you had no Rental Real Estate during the 2021 tax year, you have no expenses to report.

Any pre-paid closing costs related to acquiring the rental property will be added to the cost basis of the property in the tax year of the closing. These are not expenses.

 

The startup/organizational costs to set up your business are either business expenses or amortized capital assets. You'll find this section in TurboTax Business under Federal Taxes >> Deductions >> Startup or Organizational costs. Be sure you indicated under Business Info that your business began in 2021.

 

Per IRS Pub 535 Business Start-Up and Organizational Costs:

 

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

 

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.

 

You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins.

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Level 2
April 10, 2022

Hi, first time posting here.  Have a similar scenario.  Formed LLC Oct. 2021 to purchase a fixer upper.  Target flip completion is summer this year.  No income.  Are fees related to purchase /renovation (closing, architect,  construction permits) considered expense or startup cost?

 

From what I've read so far no need to file form 1065 if there is no income and no expense.  Just need to reconfirm this.  And if those fees mentioned are considered startup cost ,which I am hoping is true as it's already past the filing date and don't want to pay penalty.  

 

Grateful for any helpful response I can get.  

Level 2
April 12, 2022

Correct,  if you had no income or expenses then you do not have to file a return.  


Thank you for confirming.  Follow up question,  on form NJ-1065, a partnership filing fee of $150 per owner is mentioned.  If we are not filing on federal/state, for the reason mentioned no income/no expense, are we still supposed to pay the fee?  

Level 2
March 12, 2022

How do I enter multiple K1s with different percentages on 2 member llc?

Example

1st K1 - 1st member 50% contribution and 2nd member contribution 50%

2nd K1 - 1st member 80% contribution and 2nd member contribution 20%

3rd K1 - 1st member 100% contribution and 2nd member contribution 0%

 

How do  I enter this info on 1065 form for filing Multi member llc tax filing?

MarilynG
Level 15
March 15, 2022

Are you entering K-1's into your personal return that were generated from a 1065?

 

If so, here's more info on Entering Form K-1.

 

If you are using TurboTax Business, click this link for more info on Entering Ownership %.

 

 

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