Tax benefits to 50/50 LLC

[John West]

Me and a partner formed an LLC earlier this year. We wanted to start investing in real estate and my partner has a few large assets he wants to protect. We split everything 50/50. We are closing on our second property (a triplex) next week and I’m curious about how we will split the tax benefit from paper losses this year. This is the first time we are filing taxes since having the LLC so we’re pretty green. I understand the basics - how the LLC isn’t a tax benefit and is just to protect our assets. The following article by Amanda Han was excellent and helped answer 90% of my questions. https://www.biggerpockets.com/renewsblog/2014/09/11/yes-you-can-write-off-your-depreciation-heres-how/ My only remaining question is this: If we show a 5,000 paper loss, will we each get to have 2,500 that we won’t have to pay taxes on? Is it that simple?

[Lance Lvovsky]

You will each get a $2,500 loss on your K-1 from the LLC, but that does not necessary mean you will each recognize the $2,500 loss. There are numerous factors to take into consideration at the individual level:

1. Basis

2. At-risk 

3. Passive loss rules

A good CPA can help advise you how to make sure you recognize the full $2,500 loss on your 1040.