Discussion:Disregarded Rental Entity - LLC

Client is taking certification courses to expand his LLC activities to include appraisals and expanded real estate investment activities. These expenses are considerable and absolutely help him grow his current rental activities (so for discussion purposes let's accept that the costs are allowable and are not needed to meet the minimum requirements of a new occupation). If rental activities flip to Sch C as SMLLC, then additional expenses can be claimed that are not available on Sch E. However, the Sch C will ultimately result in a profit and the SE tax that's not paid through Sch E's passive activities. Because the rentals are out of state and managed by 3rd parties, the taxpayer definitely doesn't satisfy the the "real estate professional" 750 hours and 50% rules.

Realize I'm making an argument for a rhetorical question here, but 1. Wouldn't it be best to just continue reporting on Sch E and forget about the Sch C? 2. If so, does the LLC's entity name have to show up as the "taxpayer name" on the Sch E? 3. Would it be a contradiction to deduct some certain expenses on Sch E that are not directly related to the specific rental properties (such as home office, profess membership dues, seminars, etc.)? 4. Finally, one point I never mentioned to the client (but could become an issue) is whether or not the ongoing eligibility for the disability pension and social security would be compromised by including a Sch C. Can't go into the details, but the taxpayer's disability is permanent, bona fide and medically certifiable.

You seem to be looking for where to deduct some expenses that you see as less than "intuitively obvious ordinary and necessary clearly direct expenses" of your client's rental activities. Just plug them into the rental expenses somewhere on Schedule E.

You say "If rental activities flip to Sch C as SMLLC..." Don't worry, they don't. See above where it says "Rental real estate activities are reported on Schedule E."

As for "...additional expenses can be claimed [on Sch C] that are not available on Sch E" I'll admit I don't know what you're talking about; are these maybe the start-up expenses of the appraisal business which should - unlike the rentals - go on Schedule C...? Bury them in the rental properties until his Sch C gets up and running with his appraisal, non-rental, etc., business.

More later, gotta go check the fridge temperature now. A small sample of the fridge contents will be destructively tested on a regular and periodic basis to assure that the stored liquid temperature is absolutely perfect. Above freezing, below room temp has always been absolute perfect with me....... Quality assurance, that's my middle name.

  Harry "Quality Assurance" Boscoe