First Equity deal CPA advice needed

[John Paul]

Hey guys I have a quick question , I recently formed an LLC in New Jersey for real estate investment transactions.I currently have an equity deal in play where for a 30k investment I'm receiving half the equity in the property . The property is to be sold after repairs and we will split the profits . My question is I'm funding it either with a heloc I have or I was gonna use my 401k . Do I need to transfer the funds into the LLC business account first and then send my partner the money ? The profits will be deposited into the LLC account and I'm confused on how the government will know what's profit

[Ashish Acharya]

@John Paul when investing in an equity deal through your LLC, it's best to keep everything clean and traceable by using the LLC's bank account for both the investment and receipt of profits. So yes, ideally you should transfer the funds (from your HELOC or 401k) into the LLC's business account first, then send the capital from there to your partner or the deal.

This ensures the investment is clearly tied to the LLC, not you personally, which simplifies your accounting and avoids commingling funds. When the property sells, profits distributed to the LLC will be considered business income, and you’ll report that on your LLC’s return (typically on Schedule C or a partnership return, depending on structure). The IRS sees profit based on what comes into the LLC minus your documented expenses, not just the total proceeds.

Also, be cautious with using 401k funds—doing it improperly could trigger early withdrawal penalties and taxes unless you’re using a self-directed retirement plan with proper structure. Let us know if you’d like help setting up clean bookkeeping and tax reporting for this deal—it’s key to staying audit-proof and maximizing deductions.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.