I need to pick your brains. Here is the scenario:
1065 LLC gets permanent financing for apartment complex, which they built. Loan will be 10 million, which equals 80% of FMV of appraisal. After payoff for construction loan there is a remaining amount of $400,000 for cash-out, which will be taken as distributions by members (please don't question this fact, I know it's unusual). Normally a cash-out for a single person would need to be traced to determine how much interest can be deducted if cash is used for personal purposes.
Here is where I am confused about: Members (if not limited) have basis consisting of paid-in capital and loans for real estate (in my case). This distribution certainly does not bring basis below zero. Can I conclude that the distributions are non-taxable and all interest is deductible....or is there an interplay between tracing cash-out from loan and distributions beyond tracing at-risk and basis that escapes me?
1065 LLC gets permanent financing for apartment complex, which they built. Loan will be 10 million, which equals 80% of FMV of appraisal. After payoff for construction loan there is a remaining amount of $400,000 for cash-out, which will be taken as distributions by members (please don't question this fact, I know it's unusual). Normally a cash-out for a single person would need to be traced to determine how much interest can be deducted if cash is used for personal purposes.
Here is where I am confused about: Members (if not limited) have basis consisting of paid-in capital and loans for real estate (in my case). This distribution certainly does not bring basis below zero. Can I conclude that the distributions are non-taxable and all interest is deductible....or is there an interplay between tracing cash-out from loan and distributions beyond tracing at-risk and basis that escapes me?