Real Estate LLC Other Liability Not Allocating to Partners

Forum|Forum|6 years ago
March 1, 2020
2 replies
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I have a small real estate LLC with 5 members. I have input our security deposits as an other liability, it is showing on our 1065 pg 4 as a non recourse loan (showing red error). The error says it is not allocating to the partners on the K1 which I see.

TurboTax Business Windows

Anonymous_

Employee

You might want to make this adjustment in Forms Mode.

stacksholdingsAuthor

I have tried making the adjustments in the form but it will not allow me to populate the field where it needs to be added. The error message says something about a special allocation can be placed on it but I'm not able to find anything on what a special allocation code would be and what would be appropriate for a security deposit.

Anonymous_

Employee

@stacksholdings wrote:

...I'm not able to find anything on what a special allocation code would be and what would be appropriate for a security deposit.

Perhaps you can provide further details on how you entered this item and, possibly, reverse it.

Carl11_2

Employee

Something caught my eye that I think needs to be clarified.

I have input our security deposits as an other liability,

"OUR" security deposits? LLC members don't make security deposits. They make capital contributions. If the LLC has rental real estate, the renter pays the security deposit. Not the owner(s). So maybe if you clarify exactly what "our" security deposit is referring to, that will help those trying to assist here, in better understanding your situation so they can better assist you.

Security deposits paid by the tenant to the LLC are not liabilities. It's income. If/when the deposit is returned to the tenant, you'll record that as a payout in the tax year the deposit (or portion thereof) is returned to the tenant. That keeps the balance sheet straight.

Anonymous_

Employee

@Carl11_2 wrote:
Security deposits paid by the tenant to the LLC are not liabilities. It's income.

That is simply not accurate. On a balance sheet, receipt of a security deposit results in a debit to an asset account (typically cash) and a credit to a liability account. When (if) the security deposit is returned, the accounts are reversed.

Security deposits are not included in income if they may be required to be returned to the tenant at the end of the lease.

See https://www.irs.gov/taxtopics/tc414