Real estate investment LLC with no income

[rrc0406]

We opened a LLC (LLC-1) in 2020 for investing in real estate development projects. This is a partnership with 2 partners and LLC-1 is part-funding the operating LLC (LCC-2) which has LLC-1 as one of the partners. We do not have any income yet as we do not have a developed product. Any expenses incurred this year and next year leading up to the income year, are we required to file a 1065 and report the expenses? Or can we file the 1065 with income/expenses when we have income (which will result from sale).

Thank you for the response and advice.

[MaryK4]

Yes, you are required to file the 1065 to report the expenses, since they are deductible in the year they are incurred if you are a cash basis partnership.  

Unless an exception applies, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

[rrc0406]

Thanks for the response. Is there a limit to how many years one can carry the losses? We would not have income until 3 to 4 years out and would ideally like to negate the income against the expenses incurred on the investment.

[Critter-3]

Each and every year you have a partnership that is still open it is required to file a timely form 1065 no matter what the bottom line is  ... and if you did not put the 1065 on extension by 3/15/21 it is now LATE and the penalties are piling up.  Seek local professional assistance to get this return filed ASAP and to get educated on this situation you are involved in. 

[Carl]

Is there a limit to how many years one can carry the losses?

Not really. However, if you don't show any income after anywhere from 3 to 5 years, the IRS "may" question you on this. Then again, they may not. Your carry forward losses will be deducted from the business income, once the business produces income those losses can be deducted from.

But as critter stated earlier, your 1065 Partnership Return was due to the IRS on March 15th. So right now, you're a month late. The late filing penalty for a 1065 is $200 per month, per member. So with 2 members you're looking at a $400 late filing penalty. Get this done and filed before Apr15th. Otherwise, you're looking at an $800 late filing penalty after Apr 15th.

Additionally, if you are required to file this partnership with your state, you "may" be looking at late filing penalties with the state too. So get this done either yourself,or with professional help, yesterday if not sooner. Besides, you really can't even start your personal 1040 tax returns until the 1065 is completed and all K-1's are issued.