Thanks for the additional details.
The issue with the guaranteed payment(s) is no different than a business start-up paying out wages and issuing W-2's. In both cases, the respective individual will recognize ordinary income at the time of payment.
In the business start-up situation, while the employees will be issued W-2's and report that income on their respective 1040, the amount will not be deductible by the company until the business actually starts. Those cost will be accumulated and then amortized under Section 195.
The guaranteed payments are exactly the same; there are two components, (1) the payment of the guaranteed payment to the partner (member), AND, (2) the timing of the deduction for the business.
In both examples the company will need a book-to-tax adjustment (M-1) to adjust for this.
In both cases you will have an M-1 on the tax return for expenses on the books not on the return.
This won't impact the payment of the guaranteed payment to the member, just as it doesn't impact the wages paid to an employee of a start-up. Both recognize ordinary income when paid.
In your example, you will need to generate an M-1 as follows:
Dr. Construction-in-Progress
Cr. Guaranteed payments
This will adjust for the capitalization of the guaranteed payment you are referring to. It doesn't change the actual amount of guaranteed payment to the member, it just adjusts to arrive at the correct bottom line.
Then when the house is sold you will need to adjust the guaranteed payment (with a debit) to arrive at the result that matches the guaranteed payment paid out to the member. This entry then addresses the timing of the deduction to the company for the tax return.
As noted previously, guaranteed payments are paid out regardless of the income / loss of the business. The payment and timing of the deduction are separate.
*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.
