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Old 11-22-2016, 12:29 PM
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Fafsa LLC tax return, mortgage interest under personal SS#

I would love to get some guidance . I have been working with a Free Application for Federal Student Aid (FAFSA) expert that does not know about tax.

He told me to minimize my EFC (expected family contribution for my sons financial college application ) I need to get 3 rental properties off my schedule E (1040) personal return

Here is the issue I am having at the moment

He recommends getting our 3 investment properties into an LLC

OK we created in LLC and got the deeds into the new LLC

We plan to file a corp tax return for this LLC (that has an EIN number) and have all income and expenses run thru this LLC

Our mortgages with these properties are under my name and my wife's under our Soc Sec #s.

The mortgage companies will not let us have these loans under the LLC unless they are refinanced ( I am sure we can not do this and costly)

Are there any issues that you can see?

One of my concerns is that the interest paid is under our SS#s and when we file a corp tax return that is under an EIN number

Is this allowed?

How do I do this?

What do you recommend?

Thanks



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Old 11-25-2016, 07:13 AM
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We plan to file a corp tax return for this LLC (that has an EIN number) and have all income and expenses run thru this LLC==>Corp tax return? You mean either 1120 or 1120S? then you need to report all your income /expenses from the rental properties on 1120 page 1 as a C corp /1120S on form 8825 as an S corp . I mean you
established an LLC and then elected to be treated like an S corp or a C corp for tax purposes? Well, it can be done. you can set up an LLC and, after setting it up, you can elect to have the LLC treated as an S corp/ C corp by filing Form 8832 or filing a Form 2553to elect tax treatment as an S corp. you need to consider advantages and disadvantages in electing to be treated as a C or S corp before you make a decision.


Our mortgages with these properties are under my name and my wife's under our Soc Sec #s.The mortgage companies will not let us have these loans under the LLC unless they are refinanced ( I am sure we can not do this and costly) Are there any issues that you can see?==>I have no idea as I am not a mortgage expert.however, LLC, is an independent legal entity. Once you file articles of organization and is recognized by a state as an LLC, it begins an existence that is separate from you. The LLC can enter contracts in its own name, sue and be sued, and own property. The law treats the LLC as a legal person. So in my opinion, I GUESS your loan docs should/MAY include an alienation clause which meaning
that upon change of ownership, the whole loan balance becomes due immediately.You need to check your loan docs to determine if your mortgage instrument allows another party to assume the mortgage. A mortgage agreement is a contract between you and the lender; your lender is not required to release you from your obligation by substituting another entity as the responsible party unless there is a provision in the mortgage instrument that specifically allows you to assign the mortgage. You need to Call the lender and explain that you want to transfer ownership of the property to the LLC to be taxed as a Corp. I can ot help with this.



One of my concerns is that the interest paid is under our SS#s and when we file a corp tax return that is under an EIN numberIs this allowed?========>I guess this is complex situation; say once the rental properties are under the ownership of C or S corp, then, you, a Shareholder and the corp are two separate entities. The IRS recommends opening business-only banking accounts for any business. It is preferable to have the entity pay for all of its business expenses form the entity?s account and to have one credit card that is used solely for business expenses.However, even when you do maintain separate business and personal banking accounts, you may pay for business rent expenses out of your own pocket , then, IRS?d categorize the mortgage pmts as S corp shareholder loan; A loan from you to the S-corp could be recorded two different ways: as equity (Additional Paid in Capital) or as a liability (Loan from Shareholder - an Other Liability type account). If the S corp is able to repay you in the same year as you provided the loan, it is probably easier to keep it as a loan.You can charge interest. The interest will be an expense for your S-corp and an income for you personally. The Internal Revenue Code requires you to charge and record and report this interest if the amount of loan to you at the end of the tax year is substantial (over $ 10K). In this case you want to have a written contract for the loan between you and your corp and the schedule of the repayments should be similar to a commercial loan (as if you had borrowed the money from a bank).


How do I do this?==>>as mentioned above.

What do you recommend?==>I guess the best way is to contact your lender so that you can see if you can transfer the loan to your S corp or C corp or etc to pay the mortgage in your biz EIN in lieu of your SSN# as said, your lender is not required to release you from your obligation by substituting another entity as the responsible party unless there is a provision in the mortgage instrument that specifically allows you to assign the mortgage. You need to call the lender and explain that you want to transfer ownership of the property to a business entity. Even without a specific provision, a lender could agree to allow an assumption, under certain circumstances then you can
assign the mortgage to the LLC



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