I'm confused as to when I can report my start-up expenses in this hypothetical situation, as the rental property won't be available to rent until the year after LLC formation.
Timeline:
- 2019-2021: Incur several start-up expenses (travel, research, license fees, etc.) to find an ideal short term/vacation rental/AirBNB property and start an LLC.
- 6/2021: Start a multi-member LLC (with spouse) and purchase a property requiring a lot of renovation (under the LLC).
- 6/2021: Apply for an IRS EIN (showing the start of the business as the date of the LLC formation). Needed EIN for bank accounts and to submit zero-income State franchise tax return for 2021 (filing early 2022).
- 7/2021-6/2022: Extensive renovation of property with carrying costs (mortgage, utilities, insurance, etc.), some of which could be start-up expenses.
- 7/2022: Make the property available for rent. Finally make income. Deduct new expenses moving forward.
In 2021, the LLC will not make any income, as the property is not available to rent.
In late 2022, the LLC will make income from short term rentals.
1) When can I apply the start-up expenses in this scenario? 2021, 2022, or both? The LLC was officially formed in 2021, but the rental business (the actual business of the LLC) doesn't start until 2022. If I wait to take start-up expenses until 2022, will it raise any red flags that the return shows a "date business started" in 2021?
2) Will I even need to file a form 1065 (partnership return) for 2021 if there is no income (only expenses)?
I've had a hard time reconciling the LLC start date (per the state) vs. the business start date (when the property can be rented). I hope someone can clarify it for me!
Thanks in advance!
