Discussion:Real Estate LLC Member's Health Insurance Premiums
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Discussion Forum Index --> Tax Questions --> Real Estate LLC Member's Health Insurance Premiums
| 26 June 2007 | |
| I know that premiums paid by an LLC classified as a partnership for health insurance on behalf of its members are considered guaranteed payments. As guaranteed payments, the premiums are deductible by the LLC and included in the recipient members' gross income. The policy would be taken out in the LLC's name.
Can the member of a real estate LLC deduct the premiums above the line on line 29 of form 1040 and not on line Schedule A subject to the 7.5 percent hurdle. Would the LLC GUARANTEE payments be subject to self-employment tax?
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| 26 June 2007 | |
| http://www.taxalmanac.org/index.php/Partner_Health_Insurance_Premiums
Try following the link. I think you will find your answers. Hope that helps. | |
| 26 June 2007 | |
| If the rental activity doesn't generate SE income, then it seems the only way to call it SE health insurance is to make it subject to SE tax by calling it a guaranteed payment. Otherwise, it is not deductible anywhere. So, pay SE tax, but avoid income tax. Oh, and would you put this guaranteed payment on the 8825 making it passive? Seems if the only business of the LLC is rental, then that's where it should go, but guaranteed payments usually reduce business income. | |
| 27 June 2007 | |
| but that still doesn't change rental income into SE income. OR, are you saying that this is not a rental LLC, but a real estate sales or real estate development LLC? | |
| 27 June 2007 | |
| rental income? It is still passive income. There is just an exception to the exception. (The exception being the $25k passive activity loss deduction limit for actively managed rentals. The RE prof professional exception being no $25k limit on deductible losses).
I still don't get why rental income would be subject to SE tax for a RE professional. Anyway, we don't know that this is a rental activity yet - the original poster only wrote real estate - which could be many things. | |
| 27 June 2007 | |
| Hi agree with kevin no S/E income for real estate rentals therefore no health insurance deduction on a 1040.bye | |
| 27 June 2007 | |
| Guaranteed payments are for partnerships, thus I assume the LLC is taxed as a partnership.Partners' se health ins is not subject to tax. | |
| June 27, 2007 | |
| Sorry, didn't realize that the rental income remained free of SE. | |
| 28 June 2007 | |
| Moved similar question regarding S Corp to it's own thread: | |
| 29 June 2007 | |
| Opps. IRS does not agree with rental income always passive activity. Real Estate Professional is not passive. Per IRS web page:
Real Estate Professional Generally, rental activities are passive activities even if you materially participated in them. However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. See the instructions for Schedule E (Form 1040) for information about making this choice. If you qualified as a real estate professional for 2006, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier. Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements. More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated. You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.
Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. If you file a joint return, do not count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated. As a result, they will seek SE taxes. | |
| June 29, 2007 | |
| Thanks Larry. I wasn't nuts after all. On this anyway. The difference on whether a RE pro is subject to SE or not hinges on whether the passive rules apply or not. If not, it's SE income. IF so, then the SE applies only if he is a Dealer. If that helps someone... | |
| 29 June 2007 | |
| Hi wow Larry you are just assuming you are correct becasue a R/E professional can treat rental activites as non passive LOSSES for purposes of off setting other sources of income that rental INCOME is subject to S/E tax. 1402(a)(1) excludes rental income form S/E earnings unless you are a dealer. A real estate professional is not a "dealer" just because he qualifies as a R/E pro. Check out RIA A-6105/6106 rental income not/subject to s/e tax and you will get the picture. Show me a cite. I think you are smoking something and leading JR with you :) Kevin did you give up on these guys? bye | |
| 30 June 2007 | |
| Larry , Section 469 Passive has nothing to do with SE tax. Oops, common misunderstanding of the tax law.
Wes I didn't give up, but I had paying customers willing to actualy listen to me discuss taxes for two days in a row. Somehow earning money beats arguing for free. Plus they laughed at most of my jokes. Of course, all the participants in my class the last 2 days said "Best class I have ever taken." That included the half that were CPAs. | |
| June 30, 2007 | |
| Quickfinder makes the definite distinction with a RE pro as to whether the passive rules apply. I've not researched further since this ain't my problem, but you cannot just dismiss the SE issue. | |
| 30 June 2007 | |
| Larry, do you put the rental income on the Sch C for your real estate professionals? | |
| 2 July 2007 | |
| Hi JR I gave you the cites and RIA dictum what more do you need :). A R/E "pro" is not necessarily a R/E "dealer" that is the distinction for S/E issues. bye | |
| July 2, 2007 | |
| Restoring your creds, Wes. Yes, you are 100% correct. If a RE pro, is NOT a dealer, then the income is not subject to SE. You can be a RE pro, and not be a dealer. | |
| 2 July 2007 | |
| I believe the IRS says a material participating real estate professional (real estate agent) may be a dealer (depending on how their property is managed). In regards to SE, see Sec. 3508. | |
| 3 July 2008 | |
| I'm a new accountant (fresh out of college) with a similar question from a family member. Brother and wife want to put their rental assets into a husband-wife LLC reporting as a partnership. Their concern is the SE tax. They own and manage several apartment buildings, no dealing involved. If they actively manage the rental activities, will they be subject to SE tax. I say no but their accountant says yes. Maybe I missed the explanation in one of the replies above. Thanks. | |
| 6 July 2008 | |
| You are both right.
The distributive share of partnership profits that represent the partner’s share of net rental income from real estate is exempt from SE tax unless extraordinary services are rendered (e.g. maid service). Internal Revenue Code § 1402(a)(1). Any guaranteed payments for services rendered would be subject to SE tax. Internal Revenue Code § 1402(a)(13). Prop Reg §1.1402(a)-2(g). | |
