My situation: We have an LLC (We'll call it LLC #1) with 2 partners that has been purchasing, rehabbing and then selling real estate.
LLC 1 and 2 are different legal and tax entities with different ownership. nothing prevents 1 from making distributions to its members. tax-free unless the distributions are in excess of a member's tax basis.
the members can then contribute the distributions received from1 to 2 - no tax consequences except how it may affect profit and loss sharing and then 2 can make distributions to its members again tax-free as long as each member has sufficient tax basis
distributions reduce a member's tax basis in the LLC and are not taxable as long as the member's tax basis is not pushed into negative territory
it would be advisable to sit down with a tax pro to go over both llcs and what you're planning just in case you omitted some important info. the tax pro can actually see the returns and numbers. we can't. this can be especially important if you don't know what your tax basis is.
