LLC For Hard Money Loans

[Nancy J.]

Hi all, I'm a newbie here and am planning on jumping into making hard money loans with a partner. I'm thinking of setting up an LLC to be the lender for these loans and have 2 questions - I think they're more accounting-related than legal questions. I understand that I will need to consult my own CPA, etc., but wondering if anyone knew these off-hand.

1. If I plan on distributing the interest income received from the HMLs as dividends to me and my partner, would these all be taxed as dividends? Meaning that we won't pay "ordinary income" tax on the interest income?

2. Are there tax reasons (or other reasons) which make it beneficial or required to fund the loans from a bank account in the LLC's name, as opposed to my own personal bank account?

Loving everything on BP so far; thanks in advance for any advice you can give!

[Jon Holdman]

The LLC is a pass through entity for taxes. The LLC will need to file a partnership return, but the income flows directly to the partners. Its ordinary income.

I encountered a situation where a bank refused to do a refi (after only a few months) because the lender on a HML was an individual. So, doing it from the LLC would have helped do the refi in that case. If you're going to create an LLC, you really should get it an bank account and run the money through that account.