Tax deductions for losses within my LLC 9 posts by 4 users

Posted: 03/26/2008 at 05:29AM

Mike,

It's not so much the AMT that's causing the issue.
Your W2 income (I'm assumming that's what's over 150K), exceeds the limitation for decucting up to 25K in passive losses. You don't lose these loses, they get carried forward until you either sell or have enough passive income to offset them. Hope this helps.

Pete

Posted: 03/26/2008 at 06:08AM

But, it sounds like you were doing a fix and flip. That's not going to generate passive income or losses that would be subject to the AGI limited " special allowance" . Did you end up keeping the house and renting it? A rental may well generate passive losses that would need to be carried forward until you sell.

Jon

Posted: 03/27/2008 at 11:49AM

Well, you are generating ordinary trade or business income in a partnership. This is going to be active income not passive as Wheatie stated. You will not have the $25K exclusion come into play with this activity. The alternative minimum tax could have come into play for other reasons and reduced some deductions and expenses from reducing your alternative minimum taxable income. I would definitely look over your tax return on Schedule E to ensure your losses on this activity are " NON-PASSIVE" . You should also look over your Sched. K1 from your 1065 and make sure all of your activity is on page 1 of the 1065 and carried over to your K1 on line 1. If all your LLC activity is on line 2, then you have a problem.

On a side note - This is not the proper entity of choice for this type of RE business. Do a search in here for numerous posts from me and others regarding proper entity choice for the different types of real estate operations.

Joe

Posted: 04/01/2008 at 06:18AM

Well, it depends on the type of expenses you incurred. If all your expenses are related to fixing up the home that you are going to flip, then it is capitalized as costs of goods sold within your inventory (homes) and that is not depreciable. You will also incur admin type of expenses and that should be separately stated from the capitalized items and deducted. So you have cell phone, home office, computer, software, utility, supplies and other expenses like that which will be deductible and should be reported on page one of your K-1 and then you will have the expenses which are directly related to your inventory or your home that you have purchased to sell. All of those expenses will go into your basis and reduce the gain when you sell the home.

Your gain will be ordinary in nature no matter how long you hold the property because your trade or business is buying and then selling the homes to customers. You only get capital treatment when you have an investment interest in the property. Don't get the term " real estate investor" confused with " investment interest" when dealing with capital vs. trade or business. Just because people in the real estate area call themselves real estate investors doesn't mean that they hold investments as capital gains. You have to look at the activity to determine that.

Because you have an ordinary trade or business, you will be active in your business if you spent over 500-750+ hours and over half of your work is dedicated to this activity. This is why I said you need to make sure nothing is in the non-passive column. Your accountant may be right that you have no expenses to use this year, but it seems that it is not because you earned over 150K this year. That is for a real estate rental activity and this is not that. So he may be right, but for the wrong reason.

Joe