The dreaded tax questions begin

[Peter Seely]

Hi All,

First I will start of by saying I will reach out to my accountant but I wanted to at least know what to ask and have an idea what I am talking about....maybe with tax I am dreaming...

My question is, I have a property under contract in my personal name right now and plan on quit claiming it to my LLC a week after close. (LLC wasn't completed when I found the property)All the repairs, travel bills to see the property etc will be paid using my personal credit card before quit claim? How can I ensure I can use these as write offs/deductions on my schedule C/1040 NR and what can I do to protect my LLC from being pierced when accounting for these expenses incurred while it was in my name? Can I just do an invoice to my company for the above said paid bills and the company then pays me? Its a single member LLC.

Thanks as always

[Dave Toelkes]

Peter,

In most cases, the costs incurred to acquire property are adjustments to basis and not deductions. Does not matter if the property was acquired to flip or to hold for the production of income. This is true whether or not you have an LLC in place.

Let's assume that your single member LLC is treated as a disregarded entity for tax purposes. If the property you purchased is to be flipped, then you report your activity on Schedule C (1040). If the property is to be used as a rental, then your rental income and expenses are reported on Schedule E (1040) as if the LLC did not exist.

On the other hand, if your single member LLC has elected to be treated as a corporation for tax purposes, then your LLC files a corporate tax return (either 1120 or 1120S) to report all your LLC income and expenses.

No matter how you and your accountant decide to treat your out of pocket expenses, you need to make sure that the LLC never pays for your personal expenses, and vice versa. Comingling funds is the easiest way to pierce the corporate veil.