Multi-member LLC for a personal vacation home

[pfurbish]

My wife and I set up a multi-member LLC this year to purchase a vacation townhouse in another state.  Mainly to avoid out of state probate and to eventually pass to our children.  This property will be for our personal use (for now).  The LLC bank account accumulated several hundred dollars of interest income mostly from the cash for the property purchase.  My understanding is:

• I need to file a 1065 for this year because of the interest income but I cannot include deductions because the property is not income generating.  
• I don't need to enter balance sheet data.
• If I stop the interest payments next year, then I don't need to file a 1065 the following year.

Thanks.

[tagteam]

You don't need to enter balance sheet data if you can answer "Yes" to all of the four questions below:

[tagteam]

You should actually seek guidance from a tax professional since you will need to file a return for the LLC (Form 1065) for each year the LLC owns the property if it is used for rental purposes and has either income or expenses.

If you have neither income nor expenses (related to rental use or otherwise) in the following tax years, then a 1065 will not be required to be filed. 

As an addendum, if your sole objective was to avoid probate, there are more efficient ways to do so beyond creating a multi-member LLC to hold title to the property.

[Mike9241]

I am not a lawyer. If one spouse should die, would probate really be avoided? What if both die simultaneously?

Is there a mortgage? In whose name - the LLCs? If yes, and you claim the mortgage interest directly on your 1040, you may expect a notice from the IRS because there will be no 1098 issued with with of either of your SSNs. At least some institutions don't issue 1098s when an entity is involved.  Real estate taxes could also be an issue.  Could the LLC protection be lost if you're paying the expenses of the property personally rather than through the LLC? This is a matter of state law. I agree with @tagteam that there were better ways to set up ownership to avoid probate. 

[tagteam]

There could be a TOD provision included in the operating agreement, among other things.

[Critter-3]

I would have put the property in a grantor trust instead of setting up a partnership  which would have avoided the need to file a separate tax return.  And if this is a vacation home that you also use personally then things could get more complicated ... please seek local professional help to get educated on what needs to be filed both fed & state wise.