What is the best way to setup business loan from individual (non owner).

[Waterl]

BACKGROUND:

My husband and I have an LLC (50/50 split K1's) for our rental property. In past years we have racked up personal credit cards to pay for improvements. All of this has previously been reported properly, however we have never claimed the interest on our personal cards due to 'tracing requirements'.

We have an individual (extended family member if that matters) who is willing to make an amortized loan to us (with legal paperwork). He is willing to loan to us directly, or the business with or with our guarantee.

Ultimately, most of this money would immediately be treated as a disbursement to pay our personal loans / credit cards.

Part of the reason to do this is to be able to clearly deduct interest. We get the side benefit of the loan no longer showing up on our credit reports and our credit card balances going down.

We DO NOT want to give away any equity / stake in the LLC.

INITIAL QUESTION:

What is the best way to setup this loan from a tax perspective, both long term (interest) and short term (like do we pay taxes on the disbursement.) With the flexibility we have on how to set this up, I want to make sure it is done correctly and adventitiously.

If it's a simple answer, and you could include some basic 'reported here' issue 'x' etc. that would be helpful too. We use TT Business for the LLCs and TT H&B for our joint personal return.

Thank You!

[Carl]

You really need to talk with a tax professional in your local jurisdiction on this, as laws not only differ state-to-state, but can differ by locale too. Generally, a "business loan", will need to be secured. That means the lender will need to be a lien holder on a business asset - such as one of your rental properties. Other than that, since you say you're "doing the legal paperwork", you'd treat it no differently than you would a business loan from a bank. It does create more work for the lender though, as they are required to send you a 1098 - Mortgage Interest Statement (or it's equivalent if the loan is not secured with an actual rental property) every year.

If the loan is not secured, then calling it a "business loan" doesn't necessarily make it a business loan. That's why you need to take with a tax professional in your local area. The last place to be getting "legal advice" is in this PUBLIC user-to-user forum. If a tax professional in your local jurisdiction gives you bad guidance, you may have legal recourse. But you have NO RECOURSE for any advice you may get and follow from this forum - and that includes my advice.