LLC member loan satisfied by property

[Margaret CPA in OH]

LLC formed by mother and daughter for flipping properties jumped the gun, so to speak.  A property was found at end of 2014 and bought in daughter's name with LLC funds. Remodeling began with LLC funds and continued until rented (not flipped) in March 2015.  I booked a member loan to daughter at end of 2014.

Property was rented through July with all funds going into and out of (insurance, maintenance, etc.) LLC account.  In early August deed was finally transferred to satisfy the loan to the LLC.  I have all the crazy calculations and allocations AARRRGGGGGHHH as to what daughter reports for income and deductions but do have a question about depreciation on daughter's personal return.  As it was placed in service then ownership was transferred in the same year, I'm not certain whether that is a short tax year or nothing is taken as both things happened the same year.  Then I begin depreciation under LLC ownership in August.

Oh, I am charging plenty for this and have duly chastised them but they did what they did. Brain straightening thoughts appreciated.  I so do not want to do this but we've all been here in a way, right?

[rfassett]

My opinion is that you are over thinking it. It sounds like a case on intent over facts. It sounds like it was the intent that the LLC own the property. There have been cases just like this where the title did not dictate the circumstances. Barring any other idiocancries, I would be inclined to have the property in the LLC to begin with, with the title catching up to reality subsequently. 

Just my thoughts.

[Margaret CPA in OH]

That is exactly the case.  Any cites?  That would make my life ever so much easier!  Their's, too!  I can't even think of search terms to find this sort of thing, though.  Ideas?

And thanks!  I just do want to be sure about this and document it with something.

[Margaret CPA in OH]

Thanks again for the new direction, Ron.  I went back to an old book I have on LLC and found just what you said.  "Property is presumed to be owned by the LLC if purchased with the LLC's funds, even if acquired in the name of a member, manager, or other person."

I have to amend the 2014 return for another reason (new data arrived this year - surprise!) so will remove that member loan. Everyone will be much happier now!

[jklcpa]

Thank you for sharing what you found, Margaret. Confirming answers that are found and proper handling of issues makes this already-great forum all the more useful. 

[Margaret CPA in OH]

This was from 'Limited Liability Company & Partnership Answer Book,' third Edition, Alson R. Martin, Wolters Kluwer pub.  I forgot I had it and, even then, had no clear idea of the search terms so began paging through.  It was under Property of the LLC.  Although it is in a 2012 supplement (why I forgot about it), I am counting on it to still be valid and am going with it.

Makes life easier and the client will be much happier, too!  Thanks again for the point in the right direction!

[rfassett]

Margaret - sorry I did not get back to with cites. I did not check here after my original post until just now because of other things I have going on this weekend. But I am glad you found what you needed. Good luck!