LLC member loan in rental property LLC

[David]

LLC has 4 rental properties - commercial and residential. Rental properties are the only activity for the LLC and all revenue and expenses are reported on Form 8825.

In 2009 one of the LLC members loaned money to the LLC. The explanation was that the LLC needed funds. A note is in place and interest and principal payments have been made by the LLC to the member.

I think the interest expense should be reported on the 1065 as guaranteed payments- line 10.

However, is this interest considered loan interest used for the operation of the rental properties? Therefore, should the interest be reported along with mortgage interest on Form 8825?

Thanks.

[mcb39]

I think the interest should be reported on the 1065 as INTEREST...and flow to the K1 and then the K as Interest income. If you put it down as a guaranteed payment, he will have to pay SE Tax on it which is wrong. He should also receive a 1099-Int from the Partnership at the end of the year.

[OldJack]

>>and then the K as Interest income<<

I think Taxd Out has the right idea but it is an interest expense on the 1065 and does not show up as income on any K1. The LLC member gets a 1099-Int for his interest income the same as if it was a non-member that has loaned money to the business. I agree it is not guaranteed payments.

[OldJack]

Sorry... duplicate post.

[mcb39]

>>and then the K as Interest income<<

I think Taxd Out has the right idea but it is an interest expense on the 1065 and does not show up as income on any K1. The LLC member gets a 1099-Int for his interest income the same as if it was a non-member that has loaned money to the business. I agree it is not guaranteed payments.

Oops! A slip of the fingers. Of course, it is an expense to the Partnership and Int Income to the Investor.