Loaning Personnel Money to LLC (Rental Property)

[narendran-kandas]

This LLC has one rental property. Husband and Wife are member of this LLC. Because of non-payment of rent, I am planning to loan my personnel money to the LLC to cover operating expenses. How do I report this in FORM 1065? Our Operating agreement says that members can loan money to the LLC. Are there documentation that I need to create for this loan? 

[M-MTax]

You should document the loan carefully and report the interest the LLC pays you.

[M-MTax]

The note itself is a balance sheet entry (liability for the LLC)

[narendran-kandas]

Thanks for the response. How to determine the interest rate?

[pk]

@narendran-kandas , while agreeing with my colleague @M-MTax  on documentation of the loan  ( and generally  interest  charges ),  however you may want to consider the  benefit vs. complication of interest  earnings.  Yours being a partnership  i.e. a pass through entity ( and a Husband and Wife  and state law effects ), you will both show the interest  being earned  ( taxable ) and  interest being paid ( by the LLC )--- ultimately showing up on your own return though K-1. 

I strongly believe in KISS  ( Keep It Simple Stupid ).

Namaste ji

pk

[M-MTax]

I agree with pk. Why not just make this a capital contribution?

[Mike9241]

another reason to make it a capital contribution is if the rental has a passive loss limitation. Then the interest may not be currently deductible, but the interest would be taxable. 

[M-MTax]

another reason to make it a capital contribution is if the rental has a passive loss limitation. Then the interest may not be currently deductible, but the interest would be taxable. 

Yeah, that's right especially for a married couple. This is more like moving money from one pocket to another and losing a little in the process. 

[narendran-kandas]

@M-MTax @Mike9241 @pk Thanks all for the guidance. I will make it a capital contribution. I believe I should report this Form 1065 (Sch K-1). Is that correct?

[Mike9241]

yes it should be entered when you get to the partner section of Turbotax business.

whether it will show up depends on whether Question 4 in Scedule B is answered yes or no. but to avoid any issues now or in the future it should be entered.