Refinancing UBTI Questions.

[Toshiki Hoshino]

Hello BP,

What are you tax consequences on below situation purchasing property under Checkbook LLC.

Purchased owner financing commercial property with 2 partners (33% ownership each) for $1,250,000 with down payment of $200,000. If we incorporate BRRRRstrategy because property is worth $1,950,000 and bank allows 65%LTV, what would be my UBTI obligation when I refinance?

From my understanding, rental income will be subject to UBTI by income minus expenses and depreciation. Is that correct?

Thank you,

Tosh

[Eamonn McElroy]

You haven't stated:

(1) whether you're holding your checkbook LLC interest through a Solo 401(k), SDIRA, or some other tax exempt entity.

(2) whether the cash from the refi will be distributed from the partnership (i.e. debt-financed distribution) or kept in the partnership and reinvested.

For a property with a FMV of $1,950,000, onboarding a tax professional who has a solid understanding of partnership tax law, UBTI, and UDFI may keep you out of trouble.