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Video instructions and help with filling out and completing When Form 1065 Schedule M 3 Capitalized

Instructions and Help about When Form 1065 Schedule M 3 Capitalized

We have a vacation rental that we're rehabbing if we form an LLC to collect rents so this is where I get confused you're rehabbing a property but now you're collecting rents in my world those are two different business activities and this LLC is owned by a corporation I would never rent a property that's owned by a corporation what role would the corporation play how do the funds actually get from the customer to us personal so this is where there's a few questions do you have an answer you want to give on this one first well I think in this case we're saying that the LLC that's collecting the rents more or less the property manager is owned by the corporation that might be the case in which case it should not be owned in that same LLC right you don't want your rentals in your corporation don't any way shape or form yeah and the reason being is because if you ever take it out it's considered wages to its it's actually it's like active ordinary income but in this particular case there's an LLC owned by the Corp usually what we're seeing is it's not owned by the corporation but it's managed by the corporation and so we'll have an LLC that rehabs and does rentals and it has a corporation that's collecting the rents doing all the repairs doing it taking care of all the expenses associated with it and then it Nets out just like a property manager would and gives you the difference yeah and I think we're used to hearing the term rehab use for people who are flipping properties yep and if you're flipping and more power to you you would just the relationship between the LLC and the Corp is from a tax standpoint the LLC flows up into the Corp so you're really just trying to get that flip onto the corporation which is what we want because you know real ten thousand foot view you're either an active business which is flipping or rehabbing or developing wholesaling or you're an investor which is buy and hold for long term appreciation but you're not both so in a case like this if the LLC is acting as a property manager for the rental property they may collect the rent they may pay certain expenses for the property however none of that income none of those rents or expenses belong to the LLC or the corporation they belong to the rental property so what the LLC or the corporation would do is they will collect a management sheet for from being a property manager so I'd be like this I'm gonna draw it up let me see if I can make it get my little pen out here so let's say that you have the rental and you have tenants that pay the rental cash then you have a corporation that's managing and you paste the money over here the question is how do you get money I'm gonna make you down here how do you get money and the way you get money is in a rental property you're gonna be the tax owner meaning that I'm gonna make that disregarded a partnership it's going to flow under your return so whether you leave it in here or it comes down here doesn't matter it's still gonna end up on your 1040 doesn't matter if it's paid to the corporation how does it get it back out to you it either stays in the corporation the corporation pays tax on it if it's a c-corp if it's an S corp then it's going to flow down to you regardless if it's AC Corp or an S Corp it can reimburse your expenses associated with it and there's lots and lots of ways to get money out so I'm hoping that that is making sense but what we know for sure is that rehabs and flips are generally done in a Corp Rance is an LLC owned by you so if you really want to get down to it there's gonna be another question that's asked that's gonna that we're gonna break this down even farther but we'll get all these things and we have lots of questions that are being asked to I'm gonna look at for some of the questions that are relevant to this one they may mean if it's a short-term vacation rental all right we're gonna answer that question when we get to the Airbnb but if it's short term meaning seven days or less then you are a hotel as far as the IRS is concerned and you want that to go into a Corp if the renter rental is in an LLC and you want to flow to the Corp isn't that contribution LLC to court no so if you want the money to go to the Corp you're paying at a management fee if you don't pay at a management fee then it flows down to you individually which is good it's rents it's passive so we like that so we want to make sure that we do no do no harm one thing we've had issue with in the past is sometimes clients don't understand that they bought a property and they're rehabbing it for up to a year it's not available for rent so your expenses aren't deductible until it is available to rent mm-hmm no we don't lose those expenses we end up capitalizing them including in the value of the property but just keep in mind until you're able you don't have to actually be running it but you have to be advertising it for rent there is a great case the woody case where there was somebody taking expenses for education involved in an in real estate investment which is what Jeff is talkin when you're holding property for appreciation second you put it.

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