Hi all,
My spouse and I - who file jointly, set up an LLC to which we lent $200,000 for down payments on rental property investments. The LLC purchased a property which has been rented all last year. As the rental property (LLC) earns net income, the LLC is paying back the loan to my wife and I at an interest rate of 5%. As I understand it:
1) The LLC reports the rental income and reports a deduction for the interest paid to my wife and I.
2) I (my wife and I) report the interest income (and the net income from the LLC is passed through), and Turbotax calculates the correct taxes that I owe.
So the issues are:
A) Regarding the effect of the loan repayment - I believe I only have to pay quarterly self-employment tax on the income that the LLC pays my wife and I that is not loan repayment. If all the LLC net income is considered loan repaymentIs then I do not pay any quarterly self-employment tax. However when I file my annual returns, I end up effectively paying income tax on the LLC net income anyway. Hence the only difference is that I am not obliged to pay self-employment tax quarterly. Is this correct? Are there any other considerations that I should be aware of here?
