Lending to my LLC from HELOC on Primary Residence

[Michael Myers]

Hey Everyone! 
Looking for some finance advice on this question to make sure I do it right and don’t get into some weird tax situation:

I have a HELOC on my primary residence (held in my own name) that I would like to utilize to buy some deals. I have an LLC where I am the sole member, and that LLC is a member of a separate partnership LLC. I would like to utilize the HELOC to lend to the partnership, from my own LLC (which would be paid interest above what the HELOC charges) but am wondering what hurdles I need to jump through to do it properly. I'm guessing I'll have to move the money from the HELOC account, through my own LLC, and then to the partnership. Would I need to write up some promissory notes for each transfer to show what interest is owed to whom?

Maybe I’m making this too complicated. Looking to see what everyone thinks! Thanks!

[Ashish Acharya]

Originally posted by @Michael Myers:

Hey Everyone! 
Looking for some finance advice on this question to make sure I do it right and don’t get into some weird tax situation:

I have a HELOC on my primary residence (held in my own name) that I would like to utilize to buy some deals. I have an LLC where I am the sole member, and that LLC is a member of a separate partnership LLC. I would like to utilize the HELOC to lend to the partnership, from my own LLC (which would be paid interest above what the HELOC charges) but am wondering what hurdles I need to jump through to do it properly. I'm guessing I'll have to move the money from the HELOC account, through my own LLC, and then to the partnership. Would I need to write up some promissory notes for each transfer to show what interest is owed to whom?

Maybe I’m making this too complicated. Looking to see what everyone thinks! Thanks!

From a tax perspective, SMLLC and you are the same taxpayers. Thus, you need a debt agreement between your LLC and partnership. The interest you pay to your bank on HELOC can be deducted as investment interest, with some limitations.

If you do capital contribution rather than debt to the partnership, then you could offset your partnership income with HELOC interest. This is a general statement, you might not even be able to do this based on the partnership agreement. Talk to your partners.