Tax Structure for Multi-Member LLC investing through syndication

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Tax Structure for Multi-Member LLC investing through syndication

Andy J.
Ashburn, VA · Member since 2016 · 7 posts · 2 votes

Hi

Me & my partners created a multi-member LLC (lets called it LLC-X) taxed as partnership to invest in a multi family commercial prop via a syndication. We all have equal shares. The multi family unit itself is held under a parent LLC (lets call it LLC-Y). We're told that LLC-Y will be issuing a schedule K-1 for LLC-X for tax purposes.

I'm trying to understand what would be the tax framework in this situation. 

1) Would we first have to file Form 1065/Schedule K-1 of our own for LLC-X with the IRS by March 15? Or can we just re-use the Schedule K-1 issued by LLC-Y instead.

2) Then at tax time we'd file business returns using Schedule E for LLC-X based on the Schedule K-1 from #1

3) And then include details of the same on our personal tax returns

Did I get that right? I've tried to discuss this with a local CPA, but couldn't really get the process articulated well

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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y

@Michael Le is right—if your CPA can’t answer this question you need a different CPA. I’m not a CPA nor a tax expert, but I’ve done what you are doing many times so I can articulate this from experience (with the caveat to seek professional advice and not rely on anything I say).  This answer assumes that both LLCs have elected to be taxed like a partnership.  If they elect to be taxed like a corporation the answer would be different (but that I haven’t done so I can’t opine on that).

LLC-Y will file a 1065 (a partnership return) and issue a K-1 to LLC-X. LLC-X will then file a 1065 (either on time or late with an extension if the K-1 wasn't received with enough time) and issue K-1s to the members (you and your partners). You all would then include the income on your personal returns based on the numbers on your K-1s.

That’s why LLCs taxed as a partnership are often called “pass through” entities—because the income passes through to your personal tax return.

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  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    You need a CPA that understands real estate, regardless of what answers you get on here.

    0Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    8y

    @Michael Le is right—if your CPA can’t answer this question you need a different CPA. I’m not a CPA nor a tax expert, but I’ve done what you are doing many times so I can articulate this from experience (with the caveat to seek professional advice and not rely on anything I say).  This answer assumes that both LLCs have elected to be taxed like a partnership.  If they elect to be taxed like a corporation the answer would be different (but that I haven’t done so I can’t opine on that).

    LLC-Y will file a 1065 (a partnership return) and issue a K-1 to LLC-X. LLC-X will then file a 1065 (either on time or late with an extension if the K-1 wasn't received with enough time) and issue K-1s to the members (you and your partners). You all would then include the income on your personal returns based on the numbers on your K-1s.

    That’s why LLCs taxed as a partnership are often called “pass through” entities—because the income passes through to your personal tax return.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    2Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    8y

    @Andy J.

    I am a little confused with the description and terminology that you listed. However, I would like to give my input.

    It appears that LLC-Y owns the multi family commercial property and LLC-X owns LLC-Y.
    If I misunderstood this - please let me know.

    If this is the case, LLC-X will be required to file a partnership return. The reason a partnership return is required to be filed is because it is owned by more than 1 member. LLC-X will provide each investor with a K-1. Each investor will utilize the K-1 to complete his or her tax return.
    The return must be filed by 3/15 unless an extension is requested.
    If the K-1 can not be provided to each investor by 4/15 - the individuals may need to request to file an extension.

    LLC-Y is a single member LLC and is disregarded for tax purposes unless it elected to be taxed as a corporation. Since this is a disregarded entity - no partnership return is required to be filed. LLC-Y's information will be reported on LLC-X's tax return.

    Let me know if you have any additional questions.

    [email protected]917-280-8544
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  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    8y

    @Andy J. I agree with some others. Regardless if you get great information on here, find and hire a CPA that has done (for their clients) what you are wanting done.

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