Deductible Expenses for New LLCs

Forum|Forum|2 years ago
January 3, 2024
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Hello, in 2023, I established two LLCs (in two different states) for the purpose of buying and selling rental properties. Each LLC is a subsidiary of a holding company, which is also an LLC in a third state. The holding company is the sole member of each LLC, and I am the sole member of the holding company. Each LLC had some basic expenses (registration, registered agent fees, etc.) in 2023, but did not purchase any properties, and received no income.

If these expenses are not yet linked to a specific property, may I still deduct them as business expenses? Would I do that with a Schedule C?

TurboTax Home & Biz Windows

Anonymous_

Employee

If your LLC is going to be buying and selling houses as a business (i.e., flipping), then your LLC would be treated as a real estate dealer; the houses would essentially become inventory.

You would report on Schedule C since the LLCs are, supposedly, single-member LLCs and you would be able to deduct expenses provided you have begun operations (i.e., you are "open for business").

rynleeAuthor

Thank you. Would I then switch from a Schedule C to a Schedule E once the "business" is renting property and generating income?

Anonymous_

Employee

No, you would continue to report on Schedule C provided the business is buying and selling real estate for a profit (i.e., you're a real estate dealer).

If you're simply going to be buying property to rent long (or longer) term primarily for rental purposes (where the primary source of income is rent), then you would report rental income and expenses on Schedule E.