I have a client that is a real estate investor. She has investors take out mortgages in investment homes. The LLC pays the mortgage (and collects the rent). The problem is, the mortgage company will send a 1098 to the investor. Yet the LLC should get the deduction not the investor. Am I supposed to send a 1099 Int form to the investor from the LLC for the amount it paid in interest so that the LLC gets the expense and not the investor?
The substance of your transaction is that Investor A borrows money from Bank B, then lends that money to LLC C. C repays A by making A's required payment to B. A has interest income from C, and C should report this on a 1099-Int, and investment interest expense as shown on the 1098 from B.
If I were C, I would be very very sure that this setup doesn't run afoul of securities-registration laws.
The answer that was given does not seem to help. I have the same exact question. Our CPA had us submit our taxes this way, but we are questioning if they had us do our taxes correctly. The LLC does not technically own any of the properties because the mortgages are in the individual investor's names. Thus, the investors own the properties. Are the LLC really allowed the mortgage interest deduction? Seems right if the LLC is showing the rent it collected as income. But, don't knwo for sure...Can anyone help?
The ownership of the real estate is determined by the name(s) on the (hopefully recorded) deed, not by the name on the mortgage. For investment property, interest deductions are determined under the tracing rules under Temp. Regs. Sec. 1.163-8T(a)(3).
IMHO this is not an appropriate forum for people who aren't professional preparers to get tax advice, particularly on complex topics as apply to your specific fact pattern. Your CPA and/or the attorney who structured the LLC ought to be able to explain the tax and legal ramifications of your particular situation to you. If they have not done so, you should schedule a meeting to discuss things further.
Hi Sorndoff,
I know its been a while that you had posted this question. I was just wondering if you found an answer to your question. I am in a similar situation and looking for some help, on how to report the LLC income/expense Vs Individual's Tax Return for a Rental Property.
Thanks
