All Forum Posts by: Richard Andrade

Thank you, @Ashish Acharya! Appreciate it!

Thanks @Basit Siddiqi! At this point, I'm not really focussing on the question of how the interest on a distribution would be handled. That was the primary focus of the article referenced above.

The question I am really interested in is: after the LLC takes the loan cash-out proceeds and distributes to partners, are the partners taxed on that distribution? I ask this because I know that *normally*, loan proceeds are not considered revenue/income and are thus not taxed.

And, again, I guess we're saying that, distributions sourced from loan proceeds and distributions sourced from profits, are treated the same way?

Hey, thanks, @Steven Hamilton II! That's an interesting article that goes at least part of the way towards what I was looking for. I wish it dealt more with the subject of how the actual distribution is handled than with the interest generated by the distribution, but it's more than I've found otherwise! In the scenario I painted, it would probably be safe to assume the distribution would be far in excess of the basis, so I'm guessing that would not be treated favorably tax-wise. Thanks!

Hello! I have a scenario, I wonder if someone with tax skills can help me figure out. Here's the hypothetical:

An LLC with 2 members owns $2 million in fully-paid residential real estate assets. No mortgages. The LLC wants to do a full cash-out refinance on the properties, to pull $1.6 million out (80% of value) .

Two questions:

1) Since these are loan proceeds, not revenue or income, I imagine the LLC would not get taxed on these proceeds.

2) If the LLC turns around and distributes those loan proceeds out evenly to the 2 LLC members, how are those proceeds treated for tax purposes? Specifically, are they taxed to the members as regular distributions even if they are loan proceeds and don't represent revenue/income of the LLC?

Thanks in advance!

Richard

Thanks, Greg, for your thoughful reply. I will certainly keep that in mind!

Hi! I apologize, I have to think the scenario I'm asking about has been covered before, but haven't been able to find a discussion directly on-point to what I am going to describe. I'll try to keep it simple.

We have accumulated about $2m in leveraged real estate investment assets (residential rentals). Let's assume in 10 years, via accelerated debt payments, we completely pay off all of the mortgages and, ignoring appreciation, leaves us with $2m in assets. At that point, we'd like to quit our day jobs and "retire" but still retain ownership of the assets. The properties are owned by our LLC.

Assuming nothing changes from the current tax perspective, what is the "smartest" tax-efficient method of getting this equity out of our investments:

1) Cash out refi $1.6m (80% LTV of all the assets) and invest that money in a more liquid (albeit lower return) investment vehicle? How would this lump distribution from the LCC to us of refinance proceeds be taxed?

2) Just live off of net cash flow that the paid off properties are generating each month? Let's say that they are generating $15k each month, net of all expenses. Again, these would be distributions from the LLC.

I'm guessing #1 circumvents the LLC from realizing taxable revenue (as loan proceeds aren't revenue), but in #2 the LLC would be recognizing taxable revenue.

Sorry! Hard to get my head around but we've been arguing about the pros/cons of each. What would you do and why?