Quote from @Jess Azong:
Hello! So, friend bought a property cash under their name and now refinancing (cash-out refinance) the property into an LLC that is jointly owned by both of us and we will be getting funds from this refinance for renovation work. The proceeds from cash-out amount is less than the initial purchase amount. The lender insists on paying the proceeds or the cash-out amount to the LLC and not to the friend's personal account. My questions are: Are they any implications (tax or otherwise) to my friend or the LLC? If after the funds are paid into the business account and my friend writes a check to their personal account from the LLC to get his money out, are there any accounting implications? Alternatively, what's the best way for my friend to get their funds back without any tax implications (if any) for him and business? Finally, we need a CPA, open to referral.
Hi Jess, this may require more information to properly assess but it is possible to treat the transfer of the property and the refinancing cash out amount as a investment (capital contribution) into the business. The amount taken out from the business would possibly be treated as a return of capital (no earnings) for that individual. This would reduce the capital basis for that individual in the LLC but will not be considered taxable income. The refinance itself, will be treated as a loan purely to be paid back by the LLC over time.
It is best to speak to a CPA or Lawyer pertaining to this first and foremost to properly discuss the private details that should not be shared online.
