Writing Off Purchases In Single Member LLC
I was reading an article on Bankrate and something in it made me think....
If I contribute $10,000 to my single member LLC and then use that $ to buy a piece of land is part of that deductible?
the article was:
http://www.bankrate.com/brm/itax/tax_adviser/20041221a1.asp?prodtype=itax
The part that did was:
A limited liability company is automatically considered a partnership for tax purposes unless it elects to be treated as a corporation. A contribution of money by the members of an LLC is considered a contribution to capital of the partnership and not income. The same is true for a contribution of money by shareholders of a corporation.
"Since the LLC needs these funds to pay operating costs, the contribution will flow back to you as a tax deduction in the form of a loss from the partnership. For example, suppose the LLC made $100,000 in sales and incurred $120,000 in costs. If the partners contribute the $20,000 deficiency and the partnership pays its bills the partnership will have an overall loss of $20,000, which would be a deduction to the partners"
Thoughts/Ideas??
The contribution to the LLC is not a deduction but any expenses incurred by the LLC are shown on your return. If you bought land to hold as an investment, property taxes could be deducted on your Sch A and interest could be deducted (with limitations) as investment interest on Sch A.
Your reference to the partnership vs corporation treatment for the LLC only applies to multiple member LLCs. A single member LLC can only be treated as a corporation or as a disregarded entity (sole proprietorship).
As blueford already noted, only operating losses incurred by the LLC are passed back to you as potential deductions. Contributing money to the LLC to buy land does not create an operating loss. After the land purchase, the LLC still has an asset on its books equal to the purchase price of the property -- no operating loss, yet. If the land does not generate income, then property taxes will require an additional contribution to the LLC. The operating loss to the LLC is income ($0) minus the operating expenses (property taxes). The amount of the property taxes will flow back through to you as a deduction on your Schedule A. This is the same thing that happens anyway if you owned the land outright in your own name and paid the property taxes.