You need to consult with a tax professional to get this structured properly.
- Your facts don't specify if you have transferred the title to the LLC. This issue needs to be addressed.
- Your facts appear to indicate that the debt is still at the member level. If the debt is not at the LLC level, you are now making distributions to the member's to pay the debt. Not ideal.
- Based on the limited facts, as noted above, it does not appear that the debt followed the contribution of the property. As noted in comment 2, this would mean that there is no interest deduction at the LLC level.
- If the debt does get shifted to the LLC level, then you need to make sure that each member does not have any debt shifting as this may have tax implications. To avoid this, you need to have this addressed in the operating agreement.
Multi-member LLC's are far more complex than taxpayer's realize and have many traps for the unwary. Once again I recommend you consult with a tax professional to make sure that you get started down the right path.
Not too many things worse than getting hit with the audit lottery and realizing that you have tax implications that could have been avoided. Not an area to be penny wise pound foolish.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
