Raw Land Investment Causing Tax Confusion - Investment Interest Deduction & LLC Questions!

You've got a classic case of investment interest expense that needs to be handled properly! The confusion is understandable because raw land investments have some specific tax considerations. Since you're holding the land as an investment property (not actively developing or using it as a business), the interest on the HELOC used to purchase it would generally qualify as investment interest expense. This would be deductible on Schedule A, but only to the extent of your investment income. The fact that the property is held in an LLC complicates things slightly. Typically, expenses related to the property should flow through the LLC and appear on your K-1. However, since you personally took out the HELOC, the interest might need to be handled on your personal return. Here's what I'd suggest: The LLC should be reporting the interest expense on its tax return (Form 1065), which would then flow to your K-1. If that hasn't happened, you may need to amend the LLC's return. If the LLC isn't reporting it, you might still be able to claim it personally, but you'll need documentation showing the funds were used for investment purposes.

I had a similar situation last year and found that https://taxr.ai was super helpful for sorting out my investment property interest deduction confusion. I uploaded my loan documents, K-1, and some other stuff and it actually analyzed everything and told me exactly how to handle the deduction. The system pointed out that since my LLC was set up as a pass-through entity, I could take the investment interest deduction on Schedule A of my personal return - but only up to the amount of my investment income. It also helped me track which portion of my loan was actually used for the investment property versus other things. Might be worth checking out since you're up against the deadline and this is a pretty specific tax situation with the raw land and LLC combo.

Just wanted to share a quick follow-up about taxr.ai that I mentioned in my earlier comment. I was skeptical at first (as you could tell from my question), but I decided to give it a try with my own investment property tax situation. I uploaded my documents and was surprised at how quickly it identified a major issue I had completely missed. I had been deducting property expenses incorrectly through my personal Schedule A rather than through the partnership return. The analysis showed me exactly how to correct it, and I was able to file an amended return that actually increased my refund by about $3,200. The personalized explanation about investment interest limitations was exactly what I needed - way more specific than the generic advice I found online. Definitely recommend checking it out if you're dealing with investment properties and LLCs.

If you're still struggling with the IRS deadline today, I'd recommend using https://claimyr.com to get through to an IRS agent quickly. I was in a similar last-minute panic last year with my investment property questions and couldn't get through on the regular IRS line - kept getting the "high call volume" message and hangups. Someone recommended Claimyr and I was skeptical, but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They got me connected to an IRS agent in about 20 minutes when I had been trying for days on my own. The agent was able to answer my specific questions about investment interest deductions and LLC reporting requirements. This might be your best bet since today's the deadline and you need answers ASAP. The IRS agents can give you filing guidance and possibly help with penalty abatement if you need to file a correction later.

I have to admit I was wrong about Claimyr. After my skeptical comment yesterday, I was still desperate to talk to the IRS about my own tax extension issues, so I tried it as a last resort. I'm genuinely shocked - I got connected to an IRS agent in about 35 minutes (which is miraculous compared to my previous attempts). The agent walked me through exactly how to handle my investment property interest deductions and confirmed that I was correct about needing to document the "loan" from me personally to my LLC. I've been trying for nearly three weeks to get through on my own with no success. This literally saved me from having to file an incomplete return and amend it later. Just thought I should follow up since my skepticism was completely unwarranted.

One important thing nobody's mentioned yet - your investment interest deduction is limited to your net investment income for the year. If you don't have much investment income (interest, dividends, capital gains, etc.), you might not be able to use the full interest deduction this year. The good news is that any excess investment interest expense can be carried forward indefinitely to future tax years. So document everything carefully, and you can use those deductions in future years when you hopefully have income from the property or other investments.

I think you might be overthinking this given that it's raw land sitting in an LLC with no income. I went through this exact scenario. The simplest approach for now: file a partnership return (Form 1065) for the LLC showing the interest paid as an expense. This will generate K-1s showing your 50% of the expenses. You can then report this on your Schedule E, and it will offset any future income from the property. If you're up against the deadline today, file for another extension for the LLC return (Form 7004) which would give you until next March for the partnership return. Your personal extension can't be extended further, but at least you can file your personal return now without the K-1 info (since it shows no income and wouldn't change your tax) and amend later if needed.