Discussion:Is it best for a single member LLC, with one rental property, to file a 1065 or 1040 Schedule C
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Discussion Forum Index --> Tax Questions --> Is it best for a single member LLC, with one rental property, to file a 1065 or 1040 Schedule C
Tfortaxes@msn.com (talk|edits) said: | 23 March 2007 |
| Actually a sole prop LLC can elect to be treated as whatever they want with the filing of the first return. The real questions is why be anything other then a sole prop? There is no difference in the tax result. You can have it on one form or spread it all over the place, charge your client for lots of different returns, get rich and retire in Barbados or just keep it on the Schedule C. | |
| 23 March 2007 | |
| SMLLC can only be taxed as a partnership if the SM is a partnership or LLC being taxed as a partnership. So I disagree with all of y'all. | |
| 23 March 2007 | |
| It sounded to me like it was a Single Member LLC...no partners...just one member.... | |
| 23 March 2007 | |
| I read the question to be "Single member LLC file as a partnership". By definition a single cannot BE a partnership. | |
| 23 March 2007 | |
| By definition a single member LLC has ONE OWNER.
Who is that owner? A natural person? A C-Corp? An S-Corp? A partnership? An LLC taxed as any of the above? You are all confusing single member with real live natural person. T'ain't neccessarily so. | |
| 23 March 2007 | |
| OK Kevin, I getch. If a Partnership owns a SMLLC it CAN file a 1065. | |
| 24 March 2007 | |
| We are overlooking one very important point-->>SMLLC owning RE gets reported on Sch E, not C (Assuming SM=individual). | |
| 24 March 2007 | |
| JD, who wants to answer the question when they're having so much fun arguing the assumptions? | |
| 24 March 2007 | |
| That is one of the better reasons for using this site. I get as much from the new viewpoints as from those that directly answer the question. | |
| 24 March 2007 | |
| I'm new to the site and really don't know how to use it. I just wanted to tell Jdugancpa that it seems you are the only one that has the right answer. Single member LLC with a rental property should report it on Schedule E, not C. And it fact, wouldn't it make good buisness since to advice your clients to put their rental properties into an LLC. In Maryland it costs though. Three-hundred dollars a year for filing. May be worth it for liablity protection. Like an insurance policy. | |
| 24 March 2007 | |
| Thanks for the compliment, but there are lots of folks here who know the right answer. Sometimes the forest gets lost in the trees however and it takes some back and forth to see everything there is to see. | |
| 24 March 2007 | |
| I agree with jd most of the folks above knew the answer to the question -FYI - I believe if you spend more time on the site you'll discover the amazing depth of knowledge that can be found from the experienced professionals that are participating ----expect you'll enjoy the humor as well!!! | |
Michaelstar (talk|edits) said: | 24 March 2007 |
| Simple answer - single member LLC - Schedule E / 1040. | |
| 24 March 2007 | |
| ...agree with Kevin's point completely...though would simply remind fellow almanacers, that in that case, the SMLLC does not file its own return...rather its activity is recorded on the tax return of its member... | |
Bushmaster (talk|edits) said: | 24 March 2007 |
| I am not 100% sure, but I think there is still a filing requirement for state purposes in NC so they can collect their $200 fee? | |
| 24 March 2007 | |
| NC: When you have an LLC, SM or pship, you have to file the annual report and pay the $200 fee. Using ProSeries (don't know about other software), the annual report is not included like it is for corps, you have to go to the SOS website and prepare and file there. I believe it is very good advice to put real estate in an LLC. You pay $200 or whatever to the state but you do get that LL protection. Had a new client who owned rental apartment, hired a painter who raped the tenant. Tenant sued the owner for over $1,M. Where was the LLC, did not exist at the time. Still often wonder, legal-wise, how much protection the LLC provides. I get varying answers from the legal world. | |
| 26 April 2007 | |
| I was advised multiple times, that the best entity for a rental property is LLC. However if this is a SMLLC, that is disregarded entity, and a taxpayer ends up with schedule E. - something he is trying to avoid, because he has high income, and his losses are not count, isn’t it better to have s corp?
Or I'm missing something? | |
| 26 April 2007 | |
| No r/e in corporation....think of liability and other nasty areas. Rental property is passive activity unless a real estate professional who is actively participating... | |
| 26 April 2007 | |
| Is there any way to reduse an income using rental property loses.
I'm sure I saw this question already, but unfortunately I paid too little attention to it, because I didn't understand the isue deep enouth. Sorry, but can I have a rental property in already existing corporation. The scenarion is: I do have an s corp, and I built a couple of houses. Now I rent them out, and isue myself K-1. What is wrong with this picture? And if there is nothing wrong with this picture, why I can't open an s-corp for the same purpose... or some other, and buy this rental property? | |
| 26 April 2007 | |
| I apologies. Please disregard my question. I found a discussion for this matter. | |
| 26 April 2007 | |
| Dsg, there are two problems with what you are proposing. First, the rental property will not change its character inside the S corp. It will still be a passive activity. Any losses generated will not land on your K1 line 1, Ord business income, but will land instead on line 2, net rental real estate income. So whatever limitations you are stuck with at the individual level due to passive loss rules won't go away by sticking the RE in an S corp.
Secondly, the reason most people recommend against putting RE in a corporation (S or C) is that RE is an appreciating asset. So if/when you want to get the RE out of the corporation, it is a taxable event with negative tax consequences. | |
| 26 April 2007 | |
| JDugan. So what if the RE is in an S corporation? Any recognized gain from the sale of the RE will pass through to the shareholders via K-1. No double taxation worries like a C.
Please educate me as to what I am missing about what the problem is with having RE in an S corp. Thanks. | |
| 26 April 2007 | |
| Loans secured by the property do not add to the shareholders basis for deducting losses. CA also has a 1.5% s-corp tax. | |
Death&Taxes (talk|edits) said: | 26 April 2007 |
| what happens if you want the real estate out of the S Corp for any reason but a sale. Distribution is at FMV. Another problem pointed out in another discussion: death of a shareholder steps up the basis of the stock, but not the real estate held inside the S Corp. | |
| 27 April 2007 | |
| Certainly RE inside an S corp is better than inside a C corp. But as D&T points out, if you want the RE out of the S corp without a sale (e.g. gifting to children), the RE comes out of the corp at FMV and gain is recognized.
Obviously, there will be times when RE inside an S corp, or (JR, pleeeease forgive me for saying this) even a C corp, makes sense. But the general rule is that for most individual clients and their closely-held corps, keep the RE out of the corp. | |
| 27 April 2007 | |
| LJACPA - $200, a bargain. $800 minimum per year here in California, including the (usually partial) first year.
LL for LLCs works quite well - but much better when the LLC is not a SMLLC. | |
| 27 April 2007 | |
| I was searching ATX for this matter but still don’t have a clear picture.
I don’t have experience in RE tax at all. A friend of my has $200K+ income and rental property on Sch. E., though the RE loses don’t adjust her tax. Her accountant told her to place RE into LLC, because it would be better for tax purposes. I’m trying to make sense out of this statement with a combination of what Jdugancpa says (which makes much more sense to me) . But as of now, I see the only benefit from LLC : liability. I don’t see how LLC or S corp can adjust tax. Also, it is a very important question for me, because I’m going to have rental RE soon, and shame on me if I do it wrong. | |
| April 27, 2007 | |
He's wrong Louise, so move on. No matter where that rental ends up entity wise, as JD points out, the charachter of the losses don't change, and have the same effect on the 1040. Yes, put it in an LLC for liability purposes, and rejoice that you are smarter than at least one accountant out there! 
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| 27 April 2007 | |
| Does anyone feel that the enthusiasm for these LLCs is a little overrated? I think that when clients hear liability protection and cheap insurance they think that they are protected and don't need insurance. In the apartment example above the client could have lost the apartment building. Only their other assets would have been protected by the LLC. They would also have spent a fair chunk of their own money on legal fees. If they are sued personally one of the assets available is the LLC. Their are many situations where an LLC is the ideal entity but for the client who has one rental property and not many other assets I feel they would be better served by a good umbrella policy. When a client's attorney recommends an LLC for liability protection I am certainly not going to tell them not to do it. I wonder if people like the sound of it without fully understanding what it does and doesn't do. | |
| 27 April 2007 | |
| With regard to losing the LLC itself, I read an old thread yesterday. See Lincoln2's comments (or maybe I should say the comments that he would have made if he could but did not make).
http://www.taxalmanac.org/index.php/Discussion:Change_from_a_C_corp_to_a_LLC | |
| 27 April 2007 | |
| Thank you Jdugancpa interesting reading. It still seems that in CA the retired couple with a pension, personal residence, & a rental property would be better off spending $800 a year on a insurance policy rather than the LLC fee for the rental. | |
| 27 April 2007 | |
| I like this guy- Lincoln2. The next time I’ll post my question starting with, “guys, please tell me what you are and not allowed to tell.” | |
| 28 April 2007 | |
| TonyM - You might be right, but this won't prevent them from losing their property if a judgment is obtained against them arising out of something other than their rental property (e.g., from a business activity if not retired, from an auto accident, or for something that may be excluded from their policy coverages).
I recommend clients obtain liability insurance wherever possibly AND form limited liability entities, but many don't seem too interested in taking my advice with regard to the insurance. | |
| 29 April 2007 | |
| D&T,
I don't agree with your statement on stepped up basis of s corp upon death with real estate. Wouldn't indirectly through the valuation of the stock the inheritor get the stepped up basis. | |
Death&Taxes (talk|edits) said: | 29 April 2007 |
| If the stock is sold, all is well. Yet no entry is made on the corporate books. The value of the assets in the corporation is not increased, so that if the building is sold within the corporation, there is a gain. | |
