Mortgage Expense on Form 1065

tangerinemdr15 · ‎February 20, 2020

I am filling a Form 1065 for the first time. Last year's accountant classified all mortgage payments as cash distributions to the owners. The property is not in the LLC's name, but in the owners' personal names. Can anyone explain why this can be done and how to move forward in subsequent years? Do I always reclass mortgage payments to owner's distributions? I dont know how I can continue this practice without the distributions making total equity negative.

DavidD66 · ‎February 20, 2020

It sounds like the partners' mortgage payments for their residences are being paid by the LLC. If these mortgage payments are not business expenses, then Yes, these would be distributions to the members and would reduce equity. They are not different that cash payments to the owners. These payments should be charged to, or reclassed as Owner Distributions.

There are additional reporting requirements for partnerships (LLCs filing Form 1065) that have negative capital accounts. For more information, see:

Negative Tax Basis Capital Account Reporting Requirements

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tangerinemdr15 · ‎February 20, 2020

Thank you @DavidD66 ! Should I then be not recognizing rental payments as income? It seems unbalanced to recognize the income as business income. but not the mortgage expense as business expense.

Carl · ‎February 20, 2020

all mortgage payments as cash distributions to the owners.

Did you mean to say mortgage *interest* payments? The mortgage payment itself is never deductible on any tax return. Only the interest is deductible as a business expense, and that's it. So if "mortgage payments" were made to the members, those are "in fact" cash distributions to the members.

Mortgage Expense on Form 1065

Investors & landlords

Investors & landlords

Investors & landlords