When can I return unused capital and what are the tax implications?
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[{"id": "gikus2p", "text": "How do you own the property? A smllc? Who are you worried about exactly? The bank loan? Other investors? Tax implications?", "replies": [{"id": "gikwzei", "text": "Questions I was wondering as well. If the answer is individually in a pass-through LLC - you can take it out now? You can never contribute it to the LLC? Unless the bank is requiring it to be in the account, or requiring certain reserves.\n\nOP are you expecting the $50k in prepaids to be paid by future cash flow?\n\nEven if you can take it out...are you holding 6+ mo P&amp;I reserves elsewhere? Edit: What I mean is we can't answer for you whether you should pull it all out now (or never contribute it) and keep zero reserves in the LLC. But I would sure hope the last year has taught you that you need to have reserves SOMEWHERE for when tenants stop paying rent etc.", "replies": [{"id": "gikycew", "text": "The property is in a smLLC where the single member is a partnership LLC with my family. Originally, I had collected capital from everyone assuming we would need the full downpayment plus reserves. Now with all the credits, it is not as much of a concern anymore. Property is NNN, and the CAMs are paid monthly. The CAMs would basically fund the prepaids.\n\nI would like to lower their upfront contributions and let them diversify it into other investments (e.g. bitcoin seems to be all the rage). I guess my main concern (poorly phrased initially) is the tax implication. This would lower the basis for everyone and that gain would be realized upon sale, or maybe deferred through 1031. On the other hand, I could keep distributions higher by keeping the original capital reserves and paying out of that, and the cashflow would be passed through as income.\n\n&amp;#x200B;\n\nEDIT: For example, property taxes for 2020 are paid in 2 installments in May/Nov of 2021. Therefore the seller is crediting me with property taxes for all of last year. By the time we get to May 2021, the CAM payments will cover what is due.", "replies": [{"id": "gikz09x", "text": "I think you should talk to a CPA about which items on the settlement statement are part of the original basis, and which are operating expenses. Capital contribution and cost basis are separate in my opinion.", "replies": [{"id": "gikzkps", "text": "Got it, thanks. \n\nI having these difficulties because as of right now, I am still waiting on the bank to finish approvals and send out the amounts to the title company. We are scheduled to close on Tuesday morning. (Small town bank, which is why it might actually get done on time.) I am having to guess at exactly what I need to bring to closing 1 business day out...", "replies": [{"id": "gil0wb1", "text": "My Reddit take FWIW is that capital can flow in and out of a disregarded entity with no tax consequence, unless it had certain conditions on it coming in, such as QOF/QOZ funds. You can always over-fund and pull it out later IMO. Now if you have a partnership agreement whereby capital is returned at a certain ratio and a GP gets paid differently etc then I would understand how it could matter more up front.", "replies": [{"id": "gil97ry", "text": "Thanks", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gikx4cg", "text": "This is a question only answerable by whomever is providing the $800k for you to buy this property. Reddit can speculate all day long, but it would be just that: speculation.", "replies": [{"id": "gikye28", "text": "It is a standard commercial bank loan.", "replies": [{"id": "gin5bgb", "text": "Every lender is different. Period.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gikxcd0", "text": "Talk to a CPA.", "replies": [], "depth": 1}]