Cash-out refi question

[Jess Azong]

Hello! So, friend bought a property cash under their name and now refinancing (cash-out refinance) the property into an LLC that is jointly owned by both of us. The lender insists on paying the proceeds or the cash-out amount to the LLC and not to the friend's personal account. My questions are: Are they any implications (tax or otherwise) if after the funds are paid into the business account and my friend writes a check to their personal account from the LLC to get his money out? Alternatively, what's the best way for my friend to get their funds back without any tax implications (if any) for him and business?

[David M.]

@Jess Azong

So, if Title is held by the LLC and the loan is being issue to the LLC (good job in keeping it clean), the refi should issue the cash to the LLC. Otherwise, what you are asking would be similar to me refi'ing a property of mine and your friend telling escrow to send the money to your friend instead of me.

Remember, the property/cash is under the ownership of the LLC now.

To "get the money out," you would do an "owner's draw" for which there is no tax consequence. It just simply as easy as writing a check from the LLC to your friend. You would annotate the transaction as such on the LLC's books. With the two of you, you just need to make sure that your Operating Agreement allows this, i.e. for your friend to draw off so much cash. Or, else you need to create some paperwork saying as the members of the LLC this is "okay."

You really should get some professional advice on how to properly operate your LLC. Otherwise, you'll be pierciing its corporate veil (assuming you care about it).

Hope this helps.  Happy to chat.  Good luck.