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D-48
Level 2

Form 1065 schedule M-2 Distributions

My partner and I formed an LLC to purchase a condo for rental purposes. We started with a capital account for the purpose of depositing rental income and providing funds to pay HOA fees, taxes,, insurance repairs, etc. We have replenished the account as needed since our costs in the first year have exceeded our rental income. Our property value exceeds $1M so we have to fill out schedule M-2 on our 1065. On schedule M-2 we show our capital contributions in line 2, and we have a decrease to our account as a result of the expenses exceeding our income, but we have made no distributions to ourselves. Do we enter this amount in line 6 (Distributions) even though we have not distributed funds to ourselves or line 7 (Other decreases)?

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1 Reply
PatriciaV
Employee Tax Expert

Form 1065 schedule M-2 Distributions

No, do not report distributions if none were made. Any funds you personally deposited into the business account are recorded as contributions, this would also include any funds used to purchase the condo.

 

On Schedule M-2, your beginning balance (if any) is increased/decreased by (1) cash/property contributions and (2) the Net Income (rent received less expenses paid). In the absence of any cash/property distributions, the total of those two items would be your ending balance. It's unlikely you would have any other adjustments on Schedule M-2.

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