Deductible Expenses for New LLCs

[rynlee]

Hello, in 2023, I established two LLCs (in two different states) for the purpose of buying and selling rental properties. Each LLC is a subsidiary of a holding company, which is also an LLC in a third state. The holding company is the sole member of each LLC, and I am the sole member of the holding company.   Each LLC had some basic expenses (registration, registered agent fees, etc.) in 2023, but did not purchase any properties, and received no income.  

If these expenses are not yet linked to a specific property, may I still deduct them as business expenses?   Would I do that with a Schedule C?

[tagteam]

If your LLC is going to be buying and selling houses as a business (i.e., flipping), then your LLC would be treated as a real estate dealer; the houses would essentially become inventory.

You would report on Schedule C since the LLCs are, supposedly, single-member LLCs and you would be able to deduct expenses provided you have begun operations (i.e., you are "open for business").

[rynlee]

Thank you.  Would I then switch from a Schedule C to a Schedule E once the "business" is renting property and generating income?

[tagteam]

No, you would continue to report on Schedule C provided the business is buying and selling real estate for a profit (i.e., you're a real estate dealer).

If you're simply going to be buying property to rent long (or longer) term primarily for rental purposes (where the primary source of income is rent), then you would report rental income and expenses on Schedule E.

[rynlee]

Okay, then I should have said that the two LLCs are the for the purpose of long-term rental, not buying and selling the properties themselves.  The holding company is just for holding these LLCs and establishing anonymity. 

So, back to the original question - may I deduct expenses for these LLCs, and on which returns?

[tagteam]

Schedule E for long-term rentals (and not resale).

Also, the LLCs, being single-member LLCs, are all disregarded entities, so you file as if they did not exist (i.e., on your 1040 and related schedules).

[rynlee]

Will Turbo Tax generate a Schedule E if there are not yet any rental properties associated these single-member LLC expenses?

[tagteam]

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@rynlee wrote:

Will Turbo Tax generate a Schedule E if there are not yet any rental properties associated these single-member LLC expenses?

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No. You would have to enter at least one property for a Schedule E to be generated.