Discussion:Hunting/Investment Property Owned by LLC: What is deductible?
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Graceman10 (talk|edits) said: | 26 June 2006 |
All,
I am acting and tax agent for a 4-member LLC which recently purchased some land for hunting and investment purposes. We are all new to LLCs, and have lots of questions. To focus discussion, I would like your input on the following: 1) We have a loan that we are paying interest on for the property. This interest will be tax-deductible on the Partnership forms I complete for taxes, correct? 2) We have no income, but lots of expense designed to improve the investment aspect of the property (food plots, etc.). Can any of these expenses be deducted? 3) Vehicles. I am considering obtaining a 2nd vehicle whose primary purpose will be used for the LLC (drive to property, work on property, etc.). Is there any way to deduct either the cost of the vehicle, the mileage/gas used by the vehicle, or both? I appreciate any input you have. We are not trying to cheat the system, but want to take advantage of any potential deductions we might have through the LLC. | |
| 27 June 2006 | |
| Hi sounds like you are holding real estate as an investment without a T or B. Investment interest and real estate taxes would pass through as separately stated sch A deductions. Other items sound like capital improvements. The car, man I hate the car questions. Take a mileage sch A misc investment deduction. Chances are you wont get a tax break due to AMT. Do you "really" need a second car for this or are we just oinking a little? goodbye | |
| 27 June 2006 | |
| I would wonder about the extent to which personal use is going to taint deductibility, or even characterization of certain expenses. | |
| 27 June 2006 | |
| Graceman 10. I think we are going to need some more information. Like ; do you and your partners intend to use the property to generate income or just personal use. Are you going to run a guide service for hunting ? Are you going to lease out land to farmers? You need to give us more information if you want some advise. | |
| 28 June 2006 | |
| You don't have a business, and therefore shouldn't be filing 1065's. Sorry. I'm a parnter in just such an endeavor Up Nort in Wisconsin. Have never filed a 1065. We're not in business, merely holding the real estate. The only deductions that pass thru are the property taxes and mortgage interest. I just pass them along directly without the 1065 filing. Keeps it simple. Do track improvements so that if/when it's sold, you can reduce the gain...but that's all you've got here. | |
| 3 July 2006 | |
| Is a "business" requirement necessary for filing a Form 1065 to report investment expenses? Persons can be partners in an investment, can't they?
Thanks! | |
| 3 July 2006 | |
| Either a partnership needs to be created to earn profits or to use capital. If you have capital investments where the income from the investments flow through to partners, then yes, it can be considered a partnership. I think JR is just saying that simply holding land as an investment without any other activity, is simply not a business. Some partnerships such as family partnerships hold investments and the income/expenses of these investments are what drives the partnership.
Correct me if I am wrong JR in assuming what you meant :) | |
| 3 July 2006 | |
| I acquired a client (all related parties) that have a non profit corporation that invested in a cabin to use privately for hunting, fishing or golf.
Last year three of the shareholders of this non profit corporation sold out. They've been filing Form 1120 for years. I questioned whether this was right or wrong, but basically since the only "income" they get is from the shareholders contributing money to cover the expenses. They show a loss every year which gets carried over to the next. I agree with JR that there really is no business and no return should be filed. The only purpose is to track the deferred expenses which presumably are added to basis, so if and when the property is sold, these deferred expenses of improvements, maintenance, taxes and interest will reduce the gain. Notice I included taxes and maintenance in the previous paragraph. Are taxes or maintenance additions to basis? Now that this has been done for so many years, how do I proceed if I disagree that there is no business and that this is just an investment club with ownership in a cabin. The owners told me the corporation was formed to keep any individual owner from being sued if there ever was an injury on the property. Wouldn't an insurance policy with high coverage have been sufficient? | |
| 3 July 2006 | |
| Risk management corporation it seems like, but it seems to me that they should have had a corporation which was actually a "business" and then have a sub owning property as risk management. Funny how they invested in a personal cabin..used for personal use only and wrote off the expenses. For personal use property, maintenance does not increase your basis, but capital improvements do, so I don't believe that basis should be increased by regular maintenance. Their personal use of the cabin causes maintenance items to be performed so hence, no deduction or capitalization of those.
Did the s/h realize income for personal use of a business asset (the cabin)? What is the primary business code of the nonprofit? Seems too much like just setting up a corporation for a personal venture to me... | |
- Adding a few posts on a relatively related topic; moving from a tax pro discussion:
Davischang (talk|edits) said: | 22 January 2008 |
| Davis has another similar question .I formed a s corporation 20 years ago. Originally the purpose is to buy land and build houses and sell them right away. I take out $1000000 dollars as capital and owe $2000000 dollars to seller , carrying 10 % interest annually.after a few years try, I did not get permit to build.. then I decided to hold on the land as investment property on balance sheet.Last year I sold the land for 7 millions and pay off the loan and interest. should I treat the interest as cost of land ,reducing the capital gains? or treat it as business interest (regular deduction) incurring net s corporation loss , or as investment interest deduction on k-1 item? thank you for your advice. | |
| 22 January 2008 | |
| Hi Kevin passive loss wouldnt have anything to do with holding the land (no T or B activity). Big capital gain you can take the interest either as investment interest or elect to capitalize which ever gets you the best result. It is not a business so not ordinary and you dont incur an S corp loss. Investment interest will be separately stated on the k-1. bye
PS what did you do with the real estate taxes each year? just curious | |
Davischang (talk|edits) said: | 22 January 2008 |
| Because I only pay a small(partially ) amount, I deduct the property tax currently.i shoul have thought the issue earlier. davis | |
| 22 January 2008 | |
| Wes I see your point - the real estate tax wouldn't be a trade or business deduction and so Davis needs to amend his open returns (especially since he is a CPA and bound by Circular 230) and either claim it as an investment expense or capitalize it. | |
| 23 January 2008 | |
| Hi he doesnt need to amend if he took the r/e taxes on sch A. And if its just a "small amount" (oops here goes) why amend if he passed it thru as an S loss unless AMT kicked in there may not be any adjustment. :) bye | |
