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A rental house is in an LLC owned by my brother and me. In 2016 it needed a new roof and there wasn't enough money for this repair in the LLC, so I made a contract stating that I would make a loan to the LLC. We both signed it. I did not put the money into the LLC but I paid the contractor directly out of my personal funds. Can I deduct this repair cost on the 2016 income return? I intend to recover the loan from the LLC over 2 years.

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    On your income tax return, or on the LLC's? – Joe Feb 7 '17 at 20:26
  • Is the LLC also paying you interest? – mikeazo Feb 7 '17 at 20:50
  • Are you in the United States, or somewhere else? – Chris W. Rea Feb 8 '17 at 1:35
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This new roof should go on the 2016 LLC business return, but you probably won't be able to expense the entire roof as a repair. A new roof is most likely a capital improvement, which means that it would need to be depreciated over many years instead of expensed all in 2016. The depreciation period for a residential rental property is 27.5 years. Please consider seeking a CPA or Enrolled Agent for the preparation of your LLC business return.

See also: IRS Tangible Property Regulations FAQ list

When you made the loan to the LLC (by paying the contractor and making a contract with the LLC), did you state an interest rate? If not, you and your brother should correct the contract so that an interest rate is stated, then follow it. The LLC needs to pay you interest until the loan is paid off. You need to report the interest income on your personal return, and the LLC needs to report the interest expense in its business return.

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