Investor · Northern Florida · Member since 2013 · 23 posts · 6 votes
BP,
I have an interesting question regarding ownership percentage vs. profit allocation percentage within an LLC.
I want to have an operating agreement where party A owns 60% of the LLC and party B owns 40%. Additionally, we want to split all profits and losses 50/50 in a buy and hold rental business. Here’s the question:
-can the paper losses of depreciation, interest deduction, and other write offs be split 50/50, or would they be required to follow the ownership percentages instead?
Looking forward to your inputs. I’ve done a bunch of searches for this data and have been unsuccessful-I’m probably not searching for the correct words.
Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
8y
I'll assume your LLC is taxed as a partnership. Partnerships have the inherent flexibility to accommodate tax allocation schemes to accomplish just about any economic arrangement you seek, as long as a given scheme can satisfy either the substantial economic effect or partners interest in the partnership provisions of the tax regulations. Do you have someone qualified who will be reviewing your LLC agreement? If so I think they should be able to give you comfort that your allocation scheme will ultimately be 704 compliant.
Investor · Northern Florida · Member since 2013 · 23 posts · 6 votes
8y
We are absolutely going to consult an attorney and CPA, but wanted to see if what we are trying to accomplish is within the realm of possible before spending the (well worth it) dollars to consult the pros.
What’s driving this arrangement is a lenders requirement for personal financial statement from an owner of more than 40% of the LLC. The partner doesn’t want to go through the hassle of preparing the financial statements, tax returns,etc... annually.
Thank you for the responses so far.