LLC Cash Out Refi Tax Question

[Richard Andrade]

Hello! I have a scenario, I wonder if someone with tax skills can help me figure out. Here's the hypothetical:

An LLC with 2 members owns $2 million in fully-paid residential real estate assets. No mortgages. The LLC wants to do a full cash-out refinance on the properties, to pull $1.6 million out (80% of value) .

Two questions:

1) Since these are loan proceeds, not revenue or income, I imagine the LLC would not get taxed on these proceeds.

2) If the LLC turns around and distributes those loan proceeds out evenly to the 2 LLC members, how are those proceeds treated for tax purposes? Specifically, are they taxed to the members as regular distributions even if they are loan proceeds and don't represent revenue/income of the LLC?

Thanks in advance!

Richard