Partnership Tax Advice

3 Replies

123 N Shore Owned by Partner A worth $105,000

123 Coffee Bedford owned by Partner B worth $55,000

ABC LLC has $1500 in the Bank, Partner B 51% Partner A 49%. In company resolution is it passed that Partner B & Partner A both assign respective properties to ABC LLC & additionally Partner B has agreed to contribute $40,000 (The $ amount can be changed as this is an internal document)

Expenses Paid By Partner B on her personal card

 N Shore Rehab $12,092.74
N Shore Insurance $740.25
N Shore Utilities 159.66
N Shore Earnest Money 3000
Coffee Tavern Expenses 5716.76
ABC LLC 374.88
Loan/Gift to ABC LLC 1500

Option 1

Partner B transfers entire $40,000 to ABC LLC & ABC LLC reimburses her all the above expenses she incurred on her personal credit card on the company's behalf as the company does not have a credit card yet.

Option 2

Partner B transfers entire $40,000 to ABC LLC & ABC LLC pays her personal credit card directly for the amount of expenses incurred on the company's behalf as the company does not have a credit card yet.

Option 3

Partner B just transfers the difference $40,000 - $23,584 = $16,415 . We can change the internal document that she is just brining in $16,415. In this option I am afraid ABC LLC wont be able to take care of the tax advantages on the expenses.

@Shahdan Calcuttawalla

This is a very common scenario. 

For option 1) Yes,  that is the easiest way. 

For option 2, I would avoid paying personal card form LLC account.

For option 3, as long as the expenses are the type the partner is expected to pay without reimbursement under the partnership agreement (written or unwritten), the partner can deduct the expenses on Schedule E.  So you are not losing the deduction. if you are preparing your taxes yourself, per the Schedule E instructions, such expenses should be reported on (Part II) line 28, a column has a separate line item amount along with the partnership name and a description of the amount. The notation “UPE” should be entered in column (a) of the line item along with the name of the partnership.

However, these are not common deductions like parking expense that partner incurs for the partnership and does not get reimbursed. These are the cost of Flip and need to go against the gain you sell so partnership needs to incur this when you finally make a sale. 

I would go with option one for the easiest transaction.  

Hello Ashish

Appreciate all the help. I also wanted to know if its okay to keep the deed under our personal names from a tax point of view. Both the properties are under our personal names as of now but by passing an internal resolution we have pledged it to the LLC. Your opinion will be appreciated. Thank You.

@Shahdan Calcuttawalla , from tax and legal standpoint, I would suggest transferring it to LLC. These houses are the inventories of your business activity, so keeping them under your name would negate the legal protection of the LLC.