Distribution of real estate LLC refi proceeds to related LLC

Technical topics regarding tax preparation.
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Two LLCS owned by same group of parents and adult kids, same ratios, no special allocations.

Main LLC has a bunch of properties and wants to refi some to pull out cash for the other LLC to buy or improve some other properties.

Parents and one kid qualify as real estate pro's. The two other kid's don't.


Scenario 1
the second LLC will generate enough cashflow to make payments to the first LLC to cover the monies it recevied from the first LLC's refi.

Certainly easier compliancewise to just show a loan from the LLC that refid, to the LLC that used the money to purchase/improve rental property. Not so sure the members of that second LLC will get basis for losses and distribution purposes if the financining is structured that way. I'm thinking better for first LLC to distribute the refi cash out proceeds to it's members as a debt financed distribution and pass out the allocable interest expense. Then have the members contribute the monies to the second LLC. If the first LLC needs money to cover debt repayments, the second LLC can distribute to members who then contribute to the first LLC. Subsequent years first LLC allocates part of it's total int exp as separately stated deduction. Members deduct on their Schedule E's as partnership related interest expense.

A compliance and tracking pita, especially if the first LLC refi's again.

forget Scenario 2 for now.
 

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