Member loan or capital contribution: how to book money you put into a rental LLC
A capital contribution buys you more ownership and comes back only as a distribution. A member loan is a debt the LLC repays, usually with interest, ahead of owners. Decide which one it is before the money moves, write it down, and book it that way. Calling money a loan after the fact, when nothing was signed, is the version that gets questioned.
The difference in one table
| Capital contribution | Member loan | |
|---|---|---|
| What you get | Ownership value in the LLC | A right to be repaid |
| Repayment | A distribution, not required | Principal on a schedule or on demand |
| Interest | None | Usually yes, in the note |
| LLC books | Equity | Liability (loan from member) |
| Expense to the LLC | None | Interest expense |
| Paperwork | Operating agreement, capital account | Signed promissory note |
Both put cash in the LLC's bank account. The difference is the promise made at the time. For the equity side, see recording an owner contribution.
Booking each one
Example a made-up member puts $20,000 into the LLC to cover a roof. As a contribution: debit Checking $20,000, credit Member capital $20,000. As a loan at 6% simple interest for one year: debit Checking $20,000, credit Loan from member $20,000. Over the year the LLC owes $1,200 of interest ($20,000 times 6%), so repaying everything takes $21,200. Principal of $20,000 is not an expense; the $1,200 is.
The loan lowers the LLC's profit by the interest, which is an expense on the profit and loss. The repayment of principal does not touch the profit and loss. It reduces the loan balance. Keep one loan account per member so the balance by person is always visible.
What changes for tax
For a one-member LLC the IRS treats the LLC as disregarded by default (see the IRS single-member LLC page), so a loan from yourself to your own disregarded LLC is not a debt between two taxpayers. Book it as you like for your records, but tax-wise it is your money moving between your pockets.
In an LLC taxed as a partnership, a contribution and a loan are treated differently. IRS Publication 541 covers contributions and a partner's basis in the partnership. A real loan from a member can lead to interest income for that member and an interest deduction for the LLC. Whether a payment counts as a loan, and how much interest is reasonable, is for your preparer to decide from your facts.
What to put in writing
- The date and amount, and the names of lender and borrower.
- The interest rate and how it is paid, such as monthly, yearly or at the end.
- The repayment date or schedule, and whether early repayment is allowed.
- Whether other members agreed. Check the operating agreement for any approval rule.
- A note that the loan is not a contribution, and that it does not change ownership percentages.
Keep the signed note with the books, as the IRS recordkeeping guidance suggests for supporting documents.
Paying it back
A loan is repaid by a bank transfer from the LLC to the member, split into principal and interest on the books. Do not call the repayment a distribution. If the LLC is short on cash, repay only what the note allows and keep the rest as the balance. If you cannot say how the money should come back, it was probably a contribution.
Never pay it from a personal account into the LLC's bills and call it a loan afterward. That is the pattern described in commingling funds in a rental LLC.
How DoorKeeping handles it
DoorKeeping records money moving between an owner and the LLC as a contribution or a distribution, kept in equity, and a loan from a member can be held as its own liability account on that property's ledger. Each property has its own books and bank account, and any money step waits for your one-tap approval. Your preparer decides how a loan is reported.
Sources
- IRS, Publication 541, Partnerships, read Oct 30, 2026
- IRS, Single member limited liability companies, read Oct 30, 2026
- IRS, Recordkeeping, read Oct 30, 2026
Questions
- Is money I put into my LLC a loan or a contribution?
- It is whichever you agreed it was when the money moved. A signed note and interest point to a loan. A capital account entry and no repayment terms point to a contribution.
- Can the LLC pay interest to a member?
- Yes, if there is a real loan with an interest rate. The LLC records interest expense and the member reports interest income. Ask your preparer about the rate.
- Does a loan from a member change ownership?
- No. A contribution can change capital accounts and, depending on the agreement, ownership percentages. A loan does not.