All Forum Posts by: Bob Norton

@David Coffee Only married couples in community property states can elect to treat their jointly owned LLC as a disregarded entity. Being in NC, if you setup an LLC that is jointly owned by you and your wife, then you will have to file a partnership tax return for that LLC.

The loan docs refer to working capital and operating expenses. Since the loan is to your business, you can pay any normal business expenses from the loan proceeds, including payroll expenses.  Just keep all your receipts for the items you spend the loan proceeds on.  

Setup a spreadsheet to log your receipts, so that you can track the total that you spend.  Then when you've reached an amount equal to the loan proceeds, save the log and receipts in a file in case you are audited.

As for paying personal debts and income taxes with the loan proceeds, those are not business expenses, so those expenses are not included in the use of the loan proceeds.  You can get around this by either paying yourself a salary (if you are an S-Corp), which would count as an expense for the loan proceeds, or you can distribute to yourself future profits that your business receives in the normal course of business.

@Alin Dev The EIDL loan is to your company, not to you, so paying your personal taxes probably doesn't qualify.  My understanding is that the intent of the loan is to help your business make it through the slowdown due to the pandemic.  Covering operating expenses for your business from the date you received the loan going forward definitely qualifies, whereas reimbursing yourself for prior expenses is unclear.  If you have the funds and revenue to repay yourself and you were holding these funds for future operations, then you should have no problem repaying yourself from these funds and using the EIDL loan proceeds for present and future operating expenses.

@Patricia Vildozo Are you the sole member of the LLC? If so, then quit claiming it to yourself won't matter for taxes, since the LLC is disregarded and you would file Sch C or Sch D on your personal tax return.

The expenses for 2018 would be capitalized, so you don't have to amend 2018.  You would expense the cost of the rehab and purchase in the year you sell the property (2019).  

It sounds like your intention was to rehab and sell the property, which makes it a construction project that you would report on Sch C.  If your original intention was to rehab the property and then hold it as a rental, yet due to your financial circumstances you decided to sell it, then you may be able to classify it as an investment and file it on Sch D.

You should seek out a real estate CPA to review the situation with you and advise you on the best course of action for filing your taxes.

@Raul Vasquez Check out other lenders first to compare offers.  Don't let them run your credit, until you are ready to choose a lender, to keep the credit pulls from lowering your score.

Points are pre-paid interest and are usually offered to lower the interest rate, and/or for the mortgage company to earn fees for the refinance.  In your example above, you would be paying around $4,400 in points to get this loan.

PITI stands for principal, interest, taxes and insurance. The monthly loan payment of $840.24 is broken down into $673.57 (fixed payment for principal and interest) and $166.67 for escrow to pay the annual insurance and property taxes. This amount will increase over time as your insurance and property taxes increase. Since your loan above is only a 73% loan-to-value, you should not have to escrow your insurance and property taxes. However, if you choose not to escrow your those costs, you will still need to set aside the funds in a reserve account to make sure they are available when the bills come due.

Hope this helps.

@David Jackson You should report $0 for expenses for the flip in 2019 and include those costs on your tax return for 2020 when you sold the property.

@Calvin Thomas Depending upon the amount of the EIDL loan amount, the SBA may require collateral.  If he loan is greater than $25k, then you will be pledging the assets of the company toward the loan.  The SBA will file a UCC-1 as evidence of its security interest in the assets of the company.  This UCC-1 will not attach to the sub LLCs, so I would think that the sub LLCs will continue to be able to buy and sell real estate.  Since you are a developer, then real estate is considered inventory and the loan documents specifically says that the borrower may purchase or sell normal inventory in the ordinary course of business.

@Chris McHaney The EIDL loan is for working capital to help your company to get through the pandemic.  So, you can use it for any operating expenses as a landlord, including mortgage payments.  If requested by the SBA, you will need to provide receipts of your operating expenses to prove that you are in compliance with the loan provisions.  So, make sure that you are keeping all of your receipts and other documents that you can use to prove what you spent the funds on.

You do not have to open another checking account for the loan, unless you are running your rental business through your personal checking account. (Although even that's not required in the SBA loan documents, but opening an account just for the loan proceeds avoids any claims of commingling loan funds with personal funds.)  The SBA is lending to your business, so you should be receiving the funds into your business account, anyway.

You will not be able to use the funds to refinance an existing mortgage, without the express permission of the SBA.  I'd recommend avoiding that.  You can use the loan proceeds to pay for all your operating expenses and then use any rents or income that you receive to go to paying down your mortgage.

I hope this helps.

@Robert Koulefianou @Corey Stubbs You will not owe any income taxes for transferring a property that you own to your LLC. It is considered a contribution of capital under the tax law. You can accomplish it in most areas of the country using a quit claim deed rather than a donation. You may have to pay local transfer taxes depending upon your county, so you should check into that.

@Nathan Gesner Your rental income in Italy would be subject to taxation in the US; however, you would most likely get a tax credit for some or all of the income taxes paid in Italy.  In your research, check out the rules for FinCEN.  As a US citizen, you are required to report any financial accounts you control outside of the US in excess of $10k in aggregate.