The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Ceredwyn on November 08, 2014, 07:48:07 PM
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Does anyone know how withdrawing money from a real estate LLC works for tax purposes? Here is the scenario I am struggling with:
I contribute a property worth $200k to an LLC, with initial basis $100k, treating it as a partnership to flow through all taxes
LLC takes out financing on property for $150k, distributes this cash back out to me as a return of principal
Eventually the house appreciates to $250k, LLC sells it and distributes terminal proceeds of $100k after paying off the mortgage
If this all happened without the LLC, (ignoring depreciation) there would simply be a $150k gain on the property to be taxed upon sale. However, with the LLC I see two issues:
A) Can the LLC even distribute the $150k mortgage back to me without tax impact since my basis in the LLC was only my inherited basis of $100k?
B) Assuming yes for part A, how does the basis change for all of the above transactions and what gain do I owe in the end upon property sale?
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Assuming it's a single member LLC, it's a disregarded entity for tax purposes and the answer to all your questions are the same as if there was no LLC and it was all done under your name.