Actively Manage a LLC to Buy Various Passive Income Streams

[Michael Westerman]

Hello, first post from a new member! I recently formed a single member LLC through the state of Texas to use as a vehicle to buy and hold passive income streams. I have a few existing interests in multifamily and commercial real estate. I'm in the process of buying a 5% interest in a friend's medical collections company. I fully acknowledge that all these activities are passive in nature. Additionally, I will receive K-1s for each of my investments. However, I am an active manager in my LLC.

Line G on the 1040 Schedule C asks the following: "Did you “materially participate” in the operation of this business during 2019? If “No,” see instructions for limit on losses."

I materially participated in the operation of the business. The whole intent of the LLC was to be an investment management company for my personal investments. Would I be considered to have materially participated in the business?

Thanks in advance, MW

[Carl Fischer]

@Michael Westerman

Did you work at least 750 hours? Is it well documented? Did you pay yourself a salaryw2 for your work from the profits? Do you have business expenses. If you answer yes to the above most likely it would be permitted. However check with your cpa-other income, income maximums, etc can affect the answer.