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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 2276
Experience:  Certified Public Accountant
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Test, if LLC A loans money to LLC to purchase a property for

Customer Question

JA: The accountant will know how to help. Please tell me more, so we can help you best.
Customer: Hi.. if LLC A loans money to LLC B to purchase a property for LLC B's use. is the money loaned out by LLC A taxable. both LLC are owned common shareholders.
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Customer: no
Submitted: 10 months ago.
Category: Finance
Expert:  Mark Taylor replied 10 months ago.

Hi, my name is Mark. I will be happy to help you with your questions. Please give me a moment to prepare a response.

Expert:  Mark Taylor replied 10 months ago.

The loan from LLC A and LLC B would not be a taxable event. If LLC A, used earnings to lend to LLC B, the earning would still be taxable to LLC A.

Customer: replied 10 months ago.
in what event is a company making a loan to another company using earnings, is that loaned amount not taxable.?
Expert:  Mark Taylor replied 10 months ago.

Let me give a few examples. Let's say LLC A was started with $100,000 capital contributions from its members. LLC A lends LLC B $100,000. This is not a taxable event. When LLC B, repays the loan with interest LLC A will recognize the interest.

2nd example, LLC A generated a net income of $100,000. LLC A loaned $100,000 to LLC B. The $100,000 is still taxable to LLC a. There is no taxable consequence to LLC B. Again when LLC A is paid interest it would be taxable to LLC A and deductible to LLC B.

Expert:  Mark Taylor replied 10 months ago.

The loan would be an asset to LLC A and a liability to LLC B.

Customer: replied 10 months ago.
maybe i'm not asking correctly. so for your 2nd example. the 100k loaned to llc B. I understand that the earned 100k is taxable for llc A, but when?. so if the 100k is loaned out in 2016, but paid back over next 10 years. when does llc A pay tax on the 100k that was loaned out. ?
Expert:  Mark Taylor replied 10 months ago.

The loan from LLC does not impact the taxable earnings. LLC A would report the taxable income that it earns in the current year. A loan would not have a current tax impact to either LLC A or LLC B.

Expert:  Mark Taylor replied 10 months ago.

The loan would only impact the balance sheet of both LLC's. The income statement would not be impacted until interest is paid on the loan.

Customer: replied 10 months ago.
is the amount loaned being taxable for current year any different if the companies were not LLC, or if members were not shared?where am i going wrong with this concept? is there a way this works in any sort of form? The obvious idea is that the earned income used for a loan not be taxable same year.
Expert:  Mark Taylor replied 10 months ago.

No matter what the entity selection is, a loan would not impact earned income. The earned income would be taxable in the current year (no matter if a LLC, Corporation, S-Corporation or other entity type).

What are you trying to accomplish with the loan?

Customer: replied 10 months ago.
loan is to purchase a property but instead of going to bank borrow from another llc. but did not want that amount to be a taxable burden on LLC A. also if purchased property out right then the deductions would be small over many years.
Customer: replied 10 months ago.
i'm assuming from your answer. loaning money to another LLC, or investing the money in the other LLC is treated equally tax wise.
Expert:  Mark Taylor replied 10 months ago.

Since the LLC are commonly owned you have related parties. Interest expense to LLC B would be interest earned to LLC A. In the ownership is the same it would be a wash. You are correct that whether the money is loaned from LLC A or the members of LLC B contributed the capital it would be the same treatment from a tax standpoint. This would be true if the members of LLC B are personally liable for the loan from LLC A.

Customer: replied 10 months ago.
not sure if i understood your answer.. are you saying there is a situation for funds used to fund or loan to another llc. in which those funds from llc A would not taxable that current year for either LLCs.
Expert:  Mark Taylor replied 10 months ago.

If LLC A generated net income, the income would be reported in LLC A in the current year no matter if LLC A distributes the funds to its members, loans the money to LLC B, or retains the money within LLC A.

Customer: replied 10 months ago.
thank u
Expert:  Mark Taylor replied 10 months ago.

It was my pleasure.

Expert:  Mark Taylor replied 10 months ago.

I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.