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March 3, 2022
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Form 1065 Multi-member LLC Question

  • March 3, 2022
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Hello All,

 

First time working through my form 1065 for a multi-member llc that some friends and I formed last year.  We're using the LLC to purchase real estate, but recorded no income in 2021 since we didn't close until early January 2022.  We do however have expenses related to formation/start-up and closing costs (inspection).  

 

I'm getting stuck on where to enter the expenses - TT Business wants a property associated with this expense but we didn't take ownership until 2022.  

 

Do I just need to change our business purpose from rental real estate or can I enter the address of the property?

A little lost, any help is certainly appreciated.

Best answer by PatriciaV

Since you had no Rental Real Estate during the 2021 tax year, you have no expenses to report.

Any pre-paid closing costs related to acquiring the rental property will be added to the cost basis of the property in the tax year of the closing. These are not expenses.

 

The startup/organizational costs to set up your business are either business expenses or amortized capital assets. You'll find this section in TurboTax Business under Federal Taxes >> Deductions >> Startup or Organizational costs. Be sure you indicated under Business Info that your business began in 2021.

 

Per IRS Pub 535 Business Start-Up and Organizational Costs:

 

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

 

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.

 

You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins.

2 replies

PatriciaV
PatriciaVAnswer
Employee
March 3, 2022

Since you had no Rental Real Estate during the 2021 tax year, you have no expenses to report.

Any pre-paid closing costs related to acquiring the rental property will be added to the cost basis of the property in the tax year of the closing. These are not expenses.

 

The startup/organizational costs to set up your business are either business expenses or amortized capital assets. You'll find this section in TurboTax Business under Federal Taxes >> Deductions >> Startup or Organizational costs. Be sure you indicated under Business Info that your business began in 2021.

 

Per IRS Pub 535 Business Start-Up and Organizational Costs:

 

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

 

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.

 

You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins.

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hokie689Author
March 3, 2022

Thanks Patricia.  One quick follow-up about the program itself.  I'm assuming I would still mark the business as rental real estate, etc, right?  TT seems to then want me to fill out a section for the property - I'm assuming I can just skip this section and my tax return would still be acceptable since, as you mentioned, there are no applicable rental real estate related expenses.  

 

Does this sound right? 

 

Thanks

 

Chris

March 3, 2022

Yes, that is the right thing to do. You don't want to change your activity type, but you also don't have any rental real estate income or expense to report. 

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March 12, 2022

How do I enter multiple K1s with different percentages on 2 member llc?

Example

1st K1 - 1st member 50% contribution and 2nd member contribution 50%

2nd K1 - 1st member 80% contribution and 2nd member contribution 20%

3rd K1 - 1st member 100% contribution and 2nd member contribution 0%

 

How do  I enter this info on 1065 form for filing Multi member llc tax filing?

March 15, 2022

Are you entering K-1's into your personal return that were generated from a 1065?

 

If so, here's more info on Entering Form K-1.

 

If you are using TurboTax Business, click this link for more info on Entering Ownership %.