Taxation on a manager-managed LLC

2 Replies

Hello, 

A friend and I are planning on opening a manager-managed LLC to buy properties and rent them out. We are have to use a manager-managed LLC where my partner is the manager and I am a evasive investor. I have two questions:

-Does my partner have to pay a self-employment taxes for managing the LLC?

-Can I, as a passive investor, take advantage of the tax benefits of owning real estate? In other words, Can I deduct from my personal taxes the the money that the LLC spend on repairs, insurance, the property management, accounting, legal advice,etc?

Thank you very much, I really appreciate your help!



Originally posted by @Julián Sánchez-Pinto :

Hello, 

A friend and I are planning on opening a manager-managed LLC to buy properties and rent them out. We are have to use a manager-managed LLC where my partner is the manager and I am a evasive investor. I have two questions:

-Does my partner have to pay a self-employment taxes for managing the LLC?

-Can I, as a passive investor, take advantage of the tax benefits of owning real estate? In other words, Can I deduct from my personal taxes the the money that the LLC spend on repairs, insurance, the property management, accounting, legal advice,etc?

Thank you very much, I really appreciate your help!


There is no self-employment taxes on long term (vs short term- AirBNB with service)  rental income. So, even the managing memeber would not pay the SE taxes. 

Yes, you can deduct the net loss from the rental activity. You first have to offset the rental income. If the net of the rental income and expense is a loss, you can deduct the loss against your other passive income without limitation or ordinary income ( w-2) with limitation. To deduct against the ordinary income you have to have you AGI less than 150k. There are 100s post on this topic. Let us know if you have any questions. 

 

@Julián Sánchez-Pinto

The way it will work is that the 'manager-managed LLC' will file a partnership return that will distribute a 'K-1' to each of the members(you and your friend) upon filing of the partnership tax return.

You and your friend will then each report the items on the K-1 onto your tax return.

Many of the items you mentioned such as repairs, insurance, property management, accounting, legal are deducted at the partnership level.