Back Dated Loan to an LLC

[Stu in California]

Hi, I have one owner of a 50/50 LLC has property draws from the LLC of improvements made on his behalf to his personal business property. The draws have created negative equity for the owner and in turn created a capital gain on his personal tax return.

In order to avoid the capital gain I am proposing that the other 50/50 owner, in the tax year after the draw, back date a loan to the LLC in order to cover the negative equity. (Cash for the loan was not made in the prior tax year.) Is there a valid loan?

[IRonMaN]

So how do you explain the “back dating” stuff to the IRS when they stop by for a visit?

[abctax55]

No.

[Stu in California]

Ok, got it. Had they created a loan before year end, charged whatever interest was due, would that have worked for them? The loan event satisfies the negative equity.

[qbteachmt]

"The loan event satisfies the negative equity"

But you told us this: "back date a loan to the LLC"

Which means a lower Equity, because the LLC is more in debt than before this trick is used. Something doesn't seem right in that concept.