Do You Need to Dissolve Your LLC to Report Losses?

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Ever so often we need to go back to the basics on LLCs and flow-through entities. There has been a big dramatic change in taxation for them due to the 2018 Tax Cuts and Job Act, but some of the things are still the same.

I recently received a question about real estate that has been held in an LLC. Generally speaking, an LLC is a good business entity to hold your long term rentals. If it’s a single member LLC, you’ll report the income and expenses on Schedule E of your Form 1040. If you have a multi-member LLC, you will report the income and expenses on Form 1065. The partners (members) of the LLC will receive Schedules K-1 that report income and loss figures for them to include on their individual tax returns.

The question I received was what happens when you sell off the assets inside an LLC. Do you have to dissolve the LLC? The answer to that is “no.” You may want to keep the LLC open to handle any residual expenses that may follow the sale. Or you may want to start the LLC up again with other purchases. Generally speaking, though, that isn’t always a good idea because risk would possibly still be associated from prior real estate. It would depend on your own circumstances and that’s something you may want to strategize about with an expert.

In answer to the question regarding the loss on the sale of the property, though, this will be reported on your Schedule K-1 and so flow through to your return from there. If you have suspended losses from past rentals of the property, those are shown on your individual return. When you show the sale, the suspended losses are then taken into account at the same time.

Our coaching classes are twice a month. The first Wednesday is real estate and the third Wednesday is business. If you are active in either one (or both), you can jump start your asset protection and tax savings plans. We’ll be focusing on how strategies have changed with the new Tax Act during all the coaching classes this year.

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