sschillercpa

I thought that one of the main reasons to form an LLC (limited liability company), or corporation, was that the members or stockholders could not be held personally liabile for the debts of the LLC or corporation. On what basis do you say that you can still attempt to collect a debt from the LLC "and other member"?

This topic can be confusing. You will probably have interest that is partially deductible and partially non-deductible, and some that needs to be added back when calculating the AMT. You may be able to allocate some of the interest to investment interest, depending on what the client did with the funds that were borrowed. You need to start by finding out what the "acquisition" indebtedness is. The acquisition indebtedness is the original amount of the loan taken out when the property was purchased (this may be both a first and second loan), reduce it by principal repayments, and then you can increase it by the costs of improvements made to the property. On Schedule A you can deduct interest paid on the acquisition indebtedness, plus interest paid on up to $100K of home equity indebtedness. On Form 6251, line 4, you will have to make an adjustment for the home equity indebtedness. See page 2 of the instructions to Form 6251 and the worksheet they provide. Regarding converting the home to a rental, I think all the interest would be deductible on Schedule E, but I'm not certain. Of course the resulting loss, if there is one, may not be fully deductible because of personal usage and passive activity rules, etc. I hope this helps. - Stephen

What is really silly about this requirement is that the IRS wants you to password protect a spreadsheet with Winzip 9, and then SEND THE PASSWORD IN A SEPARATE EMAIL TO THE SAME ADDRESS. This is lunacy! This protects nothing!