June 7, 2019 4:11 PM
You need to seek advice from a tax professional that understands LLC's; some may claim they understand, but this entity structure is complicated and many traps for the unwary.
I also have the following comments:
- From your facts, it appears who ever set up the structure organized this as a series LLC. Not sure why. These entities add an additional layer of complexity on an already complex structure type. If you use the series structure to its full extent, this area has very little guidance from a federal income tax perspective and many unanswered questions from the tax practitioners that specialize in partnership tax.
- The LLC can't recognize income from a lease of property that it does not own. You could lease it to the LLC and then the LLC could sublease it. You need to get legal advice on how best to draft the appropriate documentation.
- This only complicates the issue. You will have an LLC leasing the property, collecting the $$, reporting this as income, passing through this income to the member's, the member's in turn reporting the lease income and then paying the mortgage and taking the mortgage deduction on their personal tax return. You also have the issue of how the bank reports the interest income; is this using only one member's SS#? If that is the case, then you are now compounding the matter even further.
- Your last question to @Carl relates to the tax reporting of the LLC. The member's will need to track their basis in their LLC interest and update this on an annual basis using the applicable lines on their K-1. Distributions from the LLC are only taxable to the extent they exceed your basis. The tax advisor you consult with should be able to provide some assistance in this area as well.
- Kudos to you for indicating that seeking professional advice is on your To Do List !!!!
*A reminder that posts in a forum such as this do not constitute tax advice.*