LLC Partnership owns rental property title but personal mortgage - How to properly file taxes?

Thanks for the detailed explanation. So just to confirm, even though my partner and I are personally making the mortgage payments, we shouldn't deduct those directly on our personal returns? We'd need to record them as capital contributions to the LLC, and then the LLC would claim the mortgage interest deduction on the 1065? Also, what documentation should we keep to show these capital contributions? Just bank records of our personal payments toward the mortgage?

Yes, that's correct. Since the property is owned by the LLC, all expenses related to it (including mortgage interest) should run through the LLC's books, even though you're personally making the payments. The proper way to handle this is to record your mortgage payments as capital contributions to the LLC. For documentation, keep copies of all mortgage statements and payment records. You should also maintain a capital account ledger for each partner that tracks these contributions. I'd recommend having the LLC maintain separate books that show these transactions - either through accounting software or at minimum a detailed spreadsheet showing all property income, expenses, and capital contributions from partners.

That sounds interesting but I'm skeptical. How exactly does the AI know the specific tax laws for LLC partnerships? Does it actually understand the nuance between property title and mortgage holder being different entities? My CPA charges $400/hr and says these situations are complicated even for professionals.

How long did the process take? I've got my tax appointment in 3 days and just realized this mortgage/LLC issue might be more complicated than I thought. Would this be something I could get done quickly or does it take a while to process everything?

The AI is specifically trained on tax law and IRS regulations, including the complexities of pass-through entities like LLCs. It recognizes patterns in documentation that indicate specific tax treatments and can identify proper handling of split ownership/liability situations. It's similar to having a tax professional review your documents, but it can process and cross-reference information much faster. The entire process took me about 30 minutes to upload my documents and get comprehensive guidance. The system provides results almost immediately after upload. Since you're on a tight timeline, you could definitely get this done before your appointment and bring the analysis with you, which might actually save your tax preparer time and reduce your bill.

Wait, is this legit? I thought it was impossible to actually speak with someone at the IRS without waiting for hours. How does this service work? Do they just spam call the IRS until they get through or something?

Sounds like a scam tbh. Why would you pay a third party when you can just call the IRS directly for free? And even if you do get through, the IRS phone reps often give incorrect information. I've been given wrong answers multiple times that contradicted the actual tax code. Better to consult a real tax professional.

It's completely legitimate. They use technology that navigates the IRS phone system and secures your place in the queue, then calls you when they're about to connect with an agent. It's not spamming calls - they're just efficiently working through the IRS phone system. The service saved me hours of frustration and hold music. I understand being skeptical, but when you need answers directly from the IRS about something specific like an LLC structure with mixed personal/business finances, getting official guidance can be crucial. And while not every IRS agent knows everything, they did verify the proper handling of my specific situation with their technical department.

That's an excellent point I hadn't considered. Our operating agreement is pretty basic and doesn't address our mortgage situation at all. Would a simple amendment be sufficient, or should we consider redoing the entire operating agreement? And is this something we could draft ourselves or should we consult with an attorney?

A well-drafted amendment should be sufficient as long as it thoroughly addresses the mortgage arrangement. You don't necessarily need to redo the entire operating agreement. The amendment should clearly state that the partners are personally liable for the mortgage on LLC property, how those payments will be treated (as capital contributions), and how this affects capital accounts and profit/loss distributions. While there are templates online, I'd strongly recommend having an attorney review any amendment. This is a complex area where tax and business law intersect, and having proper documentation is crucial for maintaining your liability protection and tax treatment. The few hundred dollars for legal review is well worth avoiding potential problems down the road.

TurboTax Business can handle this, but you need to be careful about how you enter everything. I had a similar situation and had to manually create journal entries for the capital contributions. The software doesn't specifically ask about "property owned by LLC but mortgaged personally" scenarios. Make sure you enter all rental income and expenses (including mortgage interest) on the partnership return. Then separately record capital contributions for each partner equal to their mortgage payments. The Schedule K-1 will then correctly show rental real estate income/loss on Line 2 and the appropriate capital account adjustments.

This is such a crucial point that I wish I had known when I first set up my LLC rental property! I made the same mistake of only tracking interest payments initially. Just to add to what you're saying - when tracking the principal vs interest split, make sure you're consistent month to month. I use a simple spreadsheet that pulls the principal and interest amounts directly from my mortgage statements. This becomes especially important at year-end when you're calculating total capital contributions for each partner. Also, if your mortgage has PMI (private mortgage insurance), that's also deductible as a rental expense through the LLC, not as a personal deduction. Another detail that's easy to miss but can add up over the year. Thanks for bringing up the point about unequal contributions - that's definitely something to plan for in your operating agreement since life circumstances can change and one partner might not always be able to make their payments.

This is incredibly helpful, especially the point about depreciation! I hadn't even thought about that aspect yet. Quick question - when you mention calculating depreciation based on the property's basis in the LLC's books, how exactly do we determine that basis when we personally put down the down payment but the LLC holds title? Is the basis just the purchase price of the property, or do we need to account for the fact that we personally funded the down payment as an initial capital contribution? I want to make sure we're not missing anything that could affect our depreciation calculations going forward. Also, regarding transferring the mortgage to the LLC eventually - did you run into any issues with your lender when you explored that option? I'm wondering if it's worth pursuing or if we should just plan to keep this structure long-term.