Accredited Single Member LLC Pass-through Investment

[Cindy Cabrera]

This is my very first post, but hopefully it makes sense:

So I have a few investors interested in investing in multifamily. Unfortunately only one is technically defined as an accredited investor. All others are interested, but are not accredited investors. As a group, we were thinking of investing through an LLC owned by the single member that is considered an accredited investor. This way, all investors can still invest in a 506(c) deal if they put their funds into the LLC account which would invest in a 506(c) deal that was only for accredited investors.

The LLC was formed in California and all but one investor are living in California. Please share if you know more info on this. Concerns are how the LLC and all investors will be taxed and if all investors will be able to use the deal as a tax-write off if the deal invests in a property that has a high cost-segregation deduction on their first year for example.

Feel free to share any info!

[Eamonn McElroy]

I think you need to be careful and speak with an attorney familiar with business law and accredited investors.

What you will have on paper and what's actually going on regarding this LLC are two different things... You might be setting yourself up for trouble... I'll leave it at that.

Your last paragraph further reinforces that this is actually a multi-member LLC and not a single-member LLC as the "investors" are obviously being treated as equity investors (aka members) and receiving a flow through portion of the LLC's profit and loss.

"Concerns are how the LLC and all investors will be taxed and if all investors will be able to use the deal as a tax-write off if the deal invests in a property that has a high cost-segregation deduction on their first year for example."

Not likely. The flow-through rental real estate losses would generally be passive. Unless the LLC members have other passive income, the passive losses will be suspended and carried forward to the next tax year.