Originally Posted by rehab_lady
#1;I own an LLC 50/50. Through that LLC, we purchase, renovate, and resell residential homes. That is the primary function (sometimes there is some rent collected, but that's another story!).
#2; Given that the "product" the business sells is real estate, are the profits designated on the partnership return as capital gains and then reported to each of us as a capital gain on the K-1? Any help is greatly appreciated!!!!
#1; Putting your rental properties into an LLC will limit your personal liability with a very small initial setup cost. If your rental properties are held by an LLC you pay no additional taxes because your LLC passes all income through to youon sch k1of 1065 and you pay the taxes.if your lla is taxed as a corp, then, when S corp own rental property the tax implications are the same as for LLCs because all income is passed through to the member. S corp can be more expensive to create than LLCs and provide benefits for businesses other than rental properties. When C Corps own real estate, double taxation occurs because there is an income tax at the corporate level as well as the possibility of a retained earnings tax. LLCs are arguably the most inexpensive and tax-efficient holding company forms for rental properties.
#2;correct;each of you needs to report the capital gain on his own schk1/ sch D/8949/ sch E/1040. For tax purposes, assume that your LLC business entity must file a tax return as partnership because the federal government does not recognize an LLC as a federal tax classification unless it is taxed as a C corp as said,. However, one tax advantage of an LLC is the ability to use pass-through taxation. For example, if you and your partner are the only owners of an LLC, you can choose to be taxed as a partnership. As a result, income and capital gains from the LLC will pass through directly to you and you'll only pay taxes as an individual TPs. Since there is no separate LLC tax, you'll avoid double taxation.