Real estate LLC and Health Premiums?

1 : We have an LLC (2 member, my wife and I) set up to hold our real estate asset (condo). It has been a year, now. The first year we did some rehab but this year we will accrue some cash and next year even better. In other words, starting to make a little money. This is in California, if it matters (I assume not).

2 : Our question is about health insurance premiums. We'd like to deduct this expense or whatever we can and are not sure how to properly do so or what amount we can do this. For example, if we clear 1000 a month and our combined premiums are 500, we assume we do NOT expense this as a normal business expense, but rather against our personal profit at the end of the year? Or how does this work? What is the effective actual benefit we will receive, just so that I understand it?

Answer : 

1 : In general, The IRS does allow a husband and wife who are co-owners of a business to make an election to be qualified as a joint venture, where each spouse reports business income on a Sch C rather than on a partnership Form 1065. But IRS regulations specifically prohibit spouses who are co-owners of an LLC from making that election. However, Joint ventures for the purpose of this act cannot be in the name of a state law entity, and an LLC is formed under state law. When a married couple co-own an LLC, the IRS by default treats the company as a partnership and requires the spouses to report their share of income on Form 1065. The other option the married couple have would be to elect to have their LLC treated as a C or S Corp, under which one or both spouses can receive a wage from the LLC for actively participating in the business.

2 : The actual deduction occurs at the partnership level and is passed to the partner via lower income on the Sch K-1.

If the partnership pays for the health insurance premiums for its partners, it deducts the expense as guaranteed payments and reports the amount to each partner on their respective Sch K-1s as guaranteed payments. The partner then picks up the guaranteed payment as income and reports “self employed health insurance” deduction. The guaranteed payment offsets the self employed health insurance deduction for a net zero effect on taxable income, thus the single deduction described above on the K-1.When a partner pays his (her) own medical insurance premiums, the self-employed medical insurance deduction is allowed if there is self-employment income. In prior years, this topic..Read More..