LLC issue

[TAX]

Client owns shopping mall. So basically he has rental income and expenses.

This is a LLC with 4 members.

Please confirm or correct.me

(1) Prepare 1065 LLC form

(2) Report rental income on 8825

(3) Allocate income to all 4 members (25% each) on K-1 as they are equal members

(4) Prepare Balance sheet or not? Assets = 5,000,000 - Building cost

(5) Any other issue that I should watch out for?

Thanks in advance!

[OldJack]

Agree. Balance sheet is required on the 1065. Not all expenses may be direct rental expense to go on the 8825. Review the prior year 1065 for how it has been done in the past and any items that carryforward. Check the operating agreement to see if members receive any form of compensation before allocation of profit.

[TAX]

Agree. Balance sheet is required on the 1065. Not all expenses may be direct rental expense to go on the 8825. Review the prior year 1065 for how it has been done in the past and any items that carryforward. Check the operating agreement to see if members receive any form of compensation before allocation of profit.

Thanks for your reply.

This is the first year. They purchased in Feb 2006. I am recording on an accrual basis. Also, I will record building, land etc offset by loans from bank, owners etc.

Next, I am thinking to use component depreciation technique instead of using 39 year for commercial property. So some part of building will be depreciated using 5 or 7 years where as other will be over 39 years. This segregation will be certified by engineering firm as required by IRS. Do you see any issue with this?

This will generate loss and I think it can be carried forward to next year, right?

Thank you.

[veritas]

Excellent idea

What will the building be used for?

[OldJack]

Thanks for your reply.

This is the first year. They purchased in Feb 2006. I am recording on an accrual basis. Also, I will record building, land etc offset by loans from bank, owners etc.

Do you see any issue with this?

This will generate loss and I think it can be carried forward to next year, right?

Losses of a 1065-LLC do not carryforward.. they pass to the partners/members and any loss not deductible by them is carried back or forward by them. If component depreciation is done right there should be no problem with it.

The recording of purchased land, building, equipment, and loans on the same can be and is appropriate even on the cash basis of accounting.