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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127464  
Subject: Re: Q about closing date & owner moving out Date: 6/7/2013 4:38 PM
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Could the OP set up the rental as an LLC or some entity and then loan their money to the LLC, later refinancing the "purchase money"?

I'd have to do a good search of case law, but if it worked (and my gut says it won't) it would have to be a corporation or an LLC that elected to be taxed as a corporation. My gut is saying "no" because of related party issues.

I'm sure a disregarded LLC won't help at all. And an LLC taxed as a partnership probably won't work, as most partnership debts are attributed directly to the partners.

The best possibility (and it's still a long-shot) would be if there were an unrelated business partner (really a shareholder, as it would be a corporation) involved. And the loan would have to come from just one of the partners. And even then, you've still got to deal with the tracing rules. And the shareholder loaning the money would have interest income from the loan and would potentially get into the self-charged interest arena - a corner of tax law that I have successfully avoided so far.

In short, I can't give an absolute "No" to the possibility of using an entity because I don't know every arcane corner of tax law. But my gut is screaming "No".

--Peter
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