USA Accounting for investment in a property

[Simora]

Hi:
We are just starting out as A builder, and have an LLC, but another company, also an LLC, wants to invest $100k into a condo that we are building.
They are only investing in that condo, NOT in our company, & will get 50% of the profits once it's sold. [ Estimated to be approximately $45k ]
How do we treat this event on our taxes.
Exactly what will we have to file with the IRS.
We file a 1120 tax form, just like A corporation.

 

[BIG E]

What needs to be done is form a partnership or joint venture entity, where on A corp's books assets invested in the partnership is shown as an Investment in Joint entity, and A Corp's investment and the other entity's investment are shown in their respective investment ratios in the equity section of the balance sheet.
Profits are then shown on a K-1 for each entity to record on its own books and the joint entity files its own tax return.

 

[Simora]

What needs to be done is form a partnership or joint venture entity, where on A corp's books assets invested in the partnership is shown as an Investment in Joint entity, and A Corp's investment and the other entity's investment are shown in their respective investment ratios in the equity section of the balance sheet.
Profits are then shown on a K-1 for each entity to record on its own books and the joint entity files its own tax return.

Hi Thanks BIG E.

Is there some other option, especially if the LLC is already operating with other projects, and others will also want to invest in a project after it has already started.
Your solution works great if it's only going to be done before a project has started, and you'll be creating a new entity etc...etc... but I'm open to other options.

Again; Thanks for your input.

 

[BIG E]

If there are multiple, different investors in each project, then you should have a separate entity for each project.
If not, then it will be a nightmare in calculating each investor's % for each project if combined into one entity.

 

[Simora]

If there are multiple, different investors in each project, then you should have a separate entity for each project.
If not, then it will be a nightmare in calculating each investor's % for each project if combined into one entity.

I'm just coming to this project, and they already signed documents agreeing to allow the investors to only invest in that specific project, NOT IN THE COMPANY, and their payback based on the profits from that specific project. Then the investors go away. This strange practice is popping up in the Southwest. Some people just call it a loan, issue a 1099-INT for the payout and be done with it. Most definitely not ideal or correct.

 

[Simora]

I'm just coming to this project, and they already signed documents agreeing to allow the investors to only invest in that specific project, NOT IN THE COMPANY, and their payback based on the profits from that specific project. Then the investors go away.
This strange practice is popping up in the Southwest.
Some people just call it a loan, issue a 1099-INT for the payout and be done with it.
Most definitely not ideal or correct. I'm hoping of some other alternative than creating a new entity etc..etc. which would ideally be a better way to handle this mess.
Thanks for your suggestions. Really helpful.

 

[BIG E]

From your original post "will get 50% of the profits once it's sold."

That indicates OWNERSHIP interest in the entity. That's quite different than a "loan" in which funds are BORROWED by an entity in which the lenders earn interest during the period of time the funds are held.

 

[Simora]

RE: "will get 50% of the profits once it's sold."

I see the language implying ownership rights in a Specific Condo, but NOT in the company.
If the only Legal options are the ones that we've discussed, then, maybe it's time for some modification to the IRS accounting rules.
But, don't hold your breath.
There should be some way to account for investments into a Specific project without having to create a new entity simply to accomadate that investment.