On Sep 17, 4:26*am, aether8...[at]yahoo.com wrote:
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Your big mistake is in thinking LLC#1 can deduct its investment in
LLC#2 as an expense. It's not an expense, it's an asset, either a
loan receivable or a membership interest in #2. Either way, LLC#1
can't deduct it.

Katie in San Diego

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In article <a29d025d-9e6b-471b-878c-76208eceb3da[at]c22g2000prc.googlegroups.com> ,
<aether8203[at]yahoo.com> wrote:

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Calling the investment an expense doesn't make it one.

Therefore, the gain remains taxable.

Seth

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<aether8203[at]yahoo.com> wrote
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The $50K is a loan payable by LLC2 and a loan receivable by LLC1. If not,
it hits the equity section as an investment, and you had better hire an
attorney to look at the transaction to see if you buggered up your "S"
election.





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Investments aren't an "expense". Besides, the IRS looks at the realities of
each of the underlying transactions.

Your LLC1/"S" corporation had profit on the fix/flip transaction. End of
transaction. Pay the tax. Do not pass go. Do not collect $300.

What LLC1 does with the money is of no concern to the profit generated by
the sale.



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Your balance sheet in no way reflects the tax implications of the entity for
the year.





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I'm unclear how LLC2 got the property when LLC1 sold it for a $50K profit
already.

Also, anytime that an expense is recouped, and you took that expense on a
tax return to reduce taxable income, that recoupment is income.




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Reality?






--
Paul A. Thomas, CPA
Watkinsville, Georgia

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<aether8203[at]yahoo.com> wrote:

- quote -

What you are missing is covered in Principles of Accounting
and in Principles of Taxation.

What doesn't seem right to you - paying taxes or the
bookkeeping machinion you have conjured up?

If you want to avoid the short-term capital gain,
rent it out with an option to buy after 1 year.
If they renter doesn't commit to buy after 10 months,
put 'em on a month-to-month and put the house on the
market. But if you want the $50,000 in cash, you're
gonna have to pay short-term capital gain taxes.

Dick

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I have two LLCs (S Corp) called LLC #1 and LLC #2 for purpose of this
example.

LLC #1 invested in a fix-flip property and made $50,000 profit.

LLC #2 has another property that it wants to buy as a long term
rental.


I know the IRS tax rules state that "Fix-and-Flip" type properties DO
NOT qualify for a 1031 like-kind exchange, but what if I hadLLC #1
"invest" the $50,000 into LLC #2 ? I can call the investment an
"expense" and thereby cause my yearly balance sheet to go to ZERO.
Therefore no tax implications.

LLC #2 holds on to the property for a year+, sells it for a very small
gain (just for purposes of this example), gives the $50,000 BACK to
LLC #1. LLC #1 just has its expense "recouped", but I don't think
this would count as "income".

Is this a way to avoid paying short-term capital gains? This does
NOT seem right. What am I missing?

Thanks!
S

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >