Lender · Philadelphia, PA · Member since 2017 · 225 posts · 72 votes
Hello all: We lent money to a LLC (two members) last month, and now the LLC wants to change its structure to C-Corp. What impact do we have to our current Mortgage and Note, or what do we (private lender) need to do? All inputs are very much appreciated.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
6y
I assume you mean that they are keeping the LLC intact and merely changing its tax structure. If so, this has no impact on you, @Frank Y.. The LLC still owes you the money and all personal guarantees are still valid. You need to do nothing.
It's a different story if you're saying that they are dissolving the LLC and forming a brand new entity. In this case, your loan would become due and/or the new entity would assume the loan. I doubt that's the case from what you wrote.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
6y
I assume you mean that they are keeping the LLC intact and merely changing its tax structure. If so, this has no impact on you, @Frank Y.. The LLC still owes you the money and all personal guarantees are still valid. You need to do nothing.
It's a different story if you're saying that they are dissolving the LLC and forming a brand new entity. In this case, your loan would become due and/or the new entity would assume the loan. I doubt that's the case from what you wrote.
Lender · Philadelphia, PA · Member since 2017 · 225 posts · 72 votes
6y
@Jeff S. Hi, Jeff, thank you so much for your timely response. Very appreciate it. Another question, tax season will start soon. Do private lenders issue 1098 to borrowers? We just reported interest received as normal interest income. Thanks.
Lender · Cleveland, OH · Member since 2011 · 587 posts · 435 votes
6y
@Jeff S. is spot on. For your purposes the method of tax filling shouldnt matter. Same concept as a married person filing separately in 2018 and jointly in 2019
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
6y
If they are just changing the tax status from a disregarded entity to a C Corp. then nothing you have to do. If I ever they are dissolving the LLC informing a C Corp. then the note will become due since this is a different entity. Yes you have to issue a 1098 when you lend money or when you sell a house on owner financing.
Lender · Philadelphia, PA · Member since 2017 · 225 posts · 72 votes
6y
@Randy Rodenhouseundefined, Hi, Randy. Thank you for your response. The IRS 1098 rules has exceptions. [You need not file Form 1098 for interest received from a corporation, partnership, trust, estate, association, or company (other than a sole proprietor) even if an individual is a coborrower and all the trustees ..... ]
Lender · Philadelphia, PA · Member since 2017 · 225 posts · 72 votes
6y
Also I find the following example from IRS. So if someone has a full time job (other than real estate related) and lend money, looks like he/she does not need to file 1098. Of course, he/she has to pay tax on every penny he/she receives as interest. Correct?
[Not in the lending business. If you receive mortgage interest of $600 or more in the course of your trade or business, you are subject to the requirement to file Form 1098, even if you are not in the business of lending money. For example, if you are a real estate developer and you provide financing to an individual to buy a home in your subdivision, and that home is security for the financing, you are subject to this reporting requirement. However, if you are a physician not engaged in any other business and you lend money to an individual to buy your home, you are not subject to this reporting requirement because you did not receive the interest in the course of your trade or business as a physician.]-from IRS
I've been wondering how you would report interest received (if you are a private money lender) on your tax returns. Sounds like it would be just that - interest received. Basically taxed as any other income. Is that correct? Taxable Interest, line 2b.