Pass through on LLC income

[countrygirl2]

I'm still not comfortable with our LLC. We have had a loss the last year and will this year as we are spending all the income
on remodeling a house a year.  Until that property is placed in service we cannot deduct the monies spent, I know that.  We have 
gross of $36k, taxes and ins of $7k, and depn of $10k currently in the LLC.  The book bottom line will be -$10k for 2018.  Other things were spent on other properties last year some on the new house that is our last one to finish this year. And money spent on repairing a backhoe that caught on fire doing charity work. All the income is from completed houses placed in service in 2017 or prior to.

All the income will go into remodeling this last property, we do take expenses off for tools, etc hubs uses to do so, fuel for maintaining lawns around and other supplies and expenses as used and all those are deductible.  But in the past they had us accumulate remodeling costs by year then start depreciating those groups once the property is in service and I understand that.  We completed the house before year end of 2017 and rented it before the end of the year 2017 and they still didn't let us take any off till 2018.  I thought that year since we put it in service we would at least be able to expense what we spent in 2017? That was why we hustled to finish and rent it before year end.  I cannot follow what they have done on the LLC and they gave me no detail, I understand the rest of the return.  I am changing companies as we had a fairly simple return and in October I was still waiting, had to get mad to get them to finish it. This year we have SS, RMD's, a small pension, is about it plus the LLC amounts. I know how 2018 will work out as we have the newest house in service.   Some was spent on the newest house for sidewalks and other work, it is not in service and will be booked to the asset account to be depreciated when we get it done.

So what I'm wondering even if we finish the property this year and get it rented we cannot even take this years expenses off and will have to wait till 2019 just like we had to in 2017?  Is that correct?  We will have a book loss, and the money spent but cannot deduct any of it. I hope I have explained that well.

So I'm saying we have to pass through about $19k on income give or take?

[rangerj]

As Congress has not yet addressed the "NEW" form of business entity in the tax code, that is the LLC, The Treasury Department lets you choose how to report the activity. You can report the LLCas a corporation, as a corporation that has elected Sub Chapter S, or as a Schedule C (sole proprietor). The Sub chapter S would be a pass through entity. How are you reporting your LLC activity for tax purposes?
Next is the project properties. The purchase price and ALL expenses needed to get the property ready for rent or sale are capitalizable and would be expensed as depreciation via MACRS, or as inventory (COGS).  Look into "Component depreciation" with your new tax firm for future project houses. You capitalize all expenses such as legal fees, permits, renovation and repairs to the property, inspection fees, engineering and surveying costs etc. When you are finished and have passed all inspections and have all necessary permits for occupation, and are ready and legally able to rent the property, depreciation can begin. Common expenses not associated with a specific project can be deducted via you accounting method (accrual or cash). There have been some rulings issued by Treasury regarding residential rental property and depreciable lives of things like appliances, A/C units, etc. I cannot recall the specifics at the moment but you should have this conversation with your tax professional as well as the discussion about component depreciation. I am not sure if it applies to "residential real property" under MACRS.  

[countrygirl2]

I know its not schedule C anymore, I have one of those in another state  I don't believe its a subchapter S either, she never said.  

Here we have no inspections or permits, so we just say its completed when we list it for rent.  So sounds like I cannot deduct the expenses directly this year even if rented, still have to capitalize all.  OK


I do deduct all common expenses and  I will talk to them. I present all the expenses on  a P & L to the tax person.  But will give them the backup info on my passport too, so they can use it if necessary

[Value Buy]

Feb 7, 2019 23:41:59 GMT -5 countrygirl2 said:

I know its not schedule C anymore, I have one of those in another state  I don't believe its a subchapter S either, she never said.  

Here we have no inspections or permits, so we just say its completed when we list it for rent.  So sounds like I cannot deduct the expenses directly this year even if rented, still have to capitalize all.  OK


I do deduct all common expenses and  I will talk to them. I present all the expenses on  a P & L to the tax person.  But will give them the backup info on my passport too, so they can use it if necessary

Not trying to derail this thread, but you are saying the county you live in does issue any repair permits and never inspects the work?
Even in our county in nw Indiana we have to get a permit to replace shingles on a roof.
I guess if you never pull the permit and just do it, unless you get reported by someone I could get away with repairs but for electrical rewiring I would think you need a permit.....

[bean29]

Pat, I think repairs to the extent you are doing them are usually capitalized and depreciated over time as Ranger indicated. I understand pushing the envelope and deducting the expenses as repairs, but I think you should keep it under around $2,000 worth of expenses.  If you have say $10,000 in repairs that might trigger and audit.  I defer to anyone on the board that is a CPA though b/c I am not a CPA. 

[countrygirl2]

I agree bean and that's what we are doing.  I was hoping I could take more, will just have to pay the taxes again until we can get it all done next year, drat. We did get to fully expense a $2000 new AC last year instead of depreciate.  I signed the papers for the de minimis rule also.

Hubs has checked before he started all this OUR COUNTY has NO permit requirements except septic. When we had to fix one we went to the health department multiple times the person was never there.  We asked for a book of requirements and hubs followed what was in it, went to find out when they would come and check it.  Noone to be found.  So we took multiple pictures and covered it.  Now they finally got rid of the woman that was there and are setting up a proper health department and we will adhere to their rules if we do repair or replacement in the future we have no issue with that. She apparently was just drawing a check.  We tried to find her and she was always ill or in Indianapolis, say what??

Yes, the codes etc are a big problem here.  That's why you have so many slum landlords, its bad.  The have talked about doing something so housing that is rented is not substandard.  Hubs knows the requirements and generally exceeds them.  We could not believe they didn't have something here too.  More then anything he worries about fixing electrical right.  He had some cousins that burned up in a fire and that is why he is so diligent about heating systems and electrical.  The kids that died were the aunts that he helps look out for.

[countrygirl2]

I'm sure new construction the contractors make sure they are up to code for inspections.  And I think electrical repairs are done mainly by firms in the larger cities around us so they adhere to code.  Of course we have a lot of DIY people I'm sure that cobble it up.  But people here are real funny, they don't like a lot of the laws like they have in the cities.  But they don't realize its not good in the end.

[rangerj]

The purchase price and all the expenses needed to get a property ready to rent (place in service) are capital expenses, not repairs. Once the property is placed in service then repairs are deductible. However, repairs that MATERIALLY increase the useful life or MATERIALLY improve the value of the property are capital expenses. 

[TheOtherMe]

Feb 13, 2019 15:43:49 GMT -5 rangerj said:

The purchase price and all the expenses needed to get a property ready to rent (place in service) are capital expenses, not repairs. Once the property is placed in service then repairs are deductible. However, repairs that MATERIALLY increase the useful life or MATERIALLY improve the value of the property are capital expenses. 

If you get audited, which is unlikely with the funding of the IRS, this is an easy adjustment to make.  I've made that one numerous times, especially the capital expenses of preparing a place for rent.  Then amortized.

[countrygirl2]

I knew the prior years monies we spent on it are depreciated, but I was hoping the money we spend this year could be expensed since we will put it in service this year.  But to many years, guess I forgot I can't do that.