How can we help? Call us at 360-455-1569 or email Info@LindaKeithCPA.com.
default-logo

How to treat RE owned by LLC?

Your question:

My question is how to treat real estate on a personal balance sheet when the real estate is owned by an LLC and the LLC is partly owned by the person in question. Our spreading software tosses out closely held businesses, so if the real estate is listed as an LLC, the borrower is getting no credit for the value of the land/building owned. Should it just be listed as real estate owned instead?

Linda says:

An LLC formed solely to own real estate is, in my view, fundamentally different than a business operated as an LLC. And how it is shown on the tax return depends on whether it is owned by one person or by more than one.

Two situations:

RE is owned by a one-owner LLC. It will be reported on their Schedule E as if they owned it personally. They may not even show it as owned by the LLC on the balance sheet and more likely are listing it on their RE owned schedule as if they own it personally.

RE is owned by a multi-owner LLC. I would ask how you treat it if I own half a piece of property with my sister as a tenant in common. If you would count my half as RE owned and count my half of the mortgage against me, then it should not be any different if we have it set up as an LLC. If you need to put the borrower half on the RE owned schedule and note what you are doing, that makes more sense to me than ignoring it because of the ownership type.

As for cashflow, again I recommend you treat it as if it were not owned by an LLC. For several owners, you include the borrower/guarantor’s share in his/her cashflow.

Guidelines

Of course, you are always obligated to follow the guidelines of your bank but the first half of that word is ‘guide’. Some banks consider guidelines guides and others consider them hard and fast rules.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.