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Old 19th February 2013, 10:33 PM   #1

Join Date: Feb 2013
Posts: 1
Smile Lend Money To My Own LLC

Scenario: you form one member LLC. This LLC is going to purchase a property and rent it out. You also in addition to be a solo member of your LLC work for another employer (so the other employer pays social security etc.)
1. When you loan your personal money to your one member LLC what the interest rate you should charge LLC?
2. Why is better to receive an interest income from the loan you just gave to your own LLC than receiving a salary? Is there any difference (in addition that as an LLC you can deduct interest paid)
3. In such a case as above does the LLC considered to have any equity in the purchased home ? so other words if someone will make a lawsuit against the LLC can they get a judgment against the home, even that formally the home is own by you - the person who loan the money?
Thank you all so much

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Old 16th March 2013, 08:02 PM   #2

Join Date: Mar 2013
Location: Yelm, WA
Posts: 1
Default Lending to your own LLC

I know that one model is to form a Real Estate LLC which borrows money, say from the SBA, to finance the purchase of land and buildings. That LLC then leases the property to an operating company who actually runs the business.
It would be the operating LLC that would pay the salary as well as lease payment to the RE LLC.

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Old 18th March 2013, 09:00 AM   #3

Join Date: Dec 2012
Location: New York, NY
Posts: 18


The big thing from a legal perspective (this is not legal advice...) would be to pay enough interest that it actually feels like you and the LLC are separate. If it's a 0% interest loan it will look more like you and the LLC are one and the same. If it's closer to a market rate it will look better. You might also have taxation issues in terms of paying only interest and not wages (since the IRS wants you to be employment taxes as well), but you'd need better accounting / tax advice about that than mine...

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Old 18th March 2013, 01:27 PM   #4

Join Date: Jun 2011
Location: San Diego
Posts: 77


I agree with Alex that the interest should be near "market rate".

Interest payments have nothing to do with labor. If the LLC has needs like property maintenance and bookkeeping, it should pay someone for those tasks, whether it is you or someone else, and whether it is an employee or a contractor.

If the LLC can contract those tasks (instead of hiring an employee), it will not need to pay employee taxes. But if you are the contractor, you would be responsible for your self-employment taxes, just like if you were contracting for someone else.

If the LLC purchases the property, it may not have equity, but it will be the legal owner, not you personally. You will have a lien on it, assuming your loan specifies. I have no idea if your lien would be placed ahead of a lawsuit judgement.

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