Discussion:Real Estate Professional pays Mngt fees to self
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Discussion Forum Index --> Advanced Tax Questions --> Real Estate Professional pays Mngt fees to self
Discussion Forum Index --> Tax Questions --> Real Estate Professional pays Mngt fees to self
| 12 June 2008 | |
| Can a Real Estate Professional pay management fees for his rental properties to himself and report as schedule C income? | |
| 12 June 2008 | |
| so let's make sure we understand...
he's taking schedule e income and turning it into SE income? sounds pretty brilliant to me. Who wouldn't want to pay 15.3% tax on income that he doesn't have to? there must me more to this tax brilliance that you haven't disclosed. | |
| 12 June 2008 | |
| Yes thats it, client wants earned income for IRA, self employed health insurance, home office deductions, other expenses related to a real estate professional not easily allocated to each property and needs to start paying into social security. | |
RoyDaleOne (talk|edits) said: | 12 June 2008 |
| This answer is mostly likely no, because the only purpose is a tax motivated one.
Which, I guess you knew. You should investigate the use of a separate entity for that purpose. | |
| 12 June 2008 | |
| My opinion is that you cannot pay yourself management fees on a Schedule C even if it is a SMLLC disregarded entity. My CPA sister whom I am preparing the return for insists you can. I believe the only way is to elect be taxed a Corp S or C. This has started a family feud and I would like to find out if I am right or wrong. | |
| 12 June 2008 | |
| There were some prior discussions that a RE professional who has made the election to aggregate his rentals (for the RE loss limitation exception available to RE profs) might have to pay SE tax on the net rental anyway (in limited instances). Do a search and see if that would help. | |
| 12 June 2008 | |
| here is one such discussion - note that the door is open, but only slightly ajar Discussion:Rental activity for real eastate professional reported on Schedule C | |
RoyDaleOne (talk|edits) said: | 12 June 2008 |
| Kleinrock's Federal Tax Bulletin
September 2, 2002 IRS REJECTS CALLS TO EXPAND SELF-CHARGED RULES For those of you that have access to this article, it notes that only interest was approved by the regulations and all other items were rejected. In addition, there is reference to the Court's comments in Hillman v. IRS, KTC 2001-352 (4th Cir. 2001) that only the IRS or Congress could change the self-charge rules. | |
| 12 June 2008 | |
| Roy thanks for the info. I have read the Hillman v. IRS three times and am confused as to what actually happened. Did the Hillmans report the income and take a deduction on the SCM return or did the IRS disallow the management fee deductions on the passthrough entities?
The Hillmans reported as income the compensation paid to them for their real estate management services offered through SMC for taxable years 1993 and 1994. In computing their taxable income for 1993 and 1994, the Hillmans deducted the total amounts of the management fee expenses of the Passthrough Entities for taxable years 1993 and 1994 from the gross income they received during those years through SMC for providing the management services that gave rise to the management fee expenses. The notice of deficiency disallowed this deduction, thus resulting in the claimed tax deficiencies at issue in this appeal. | |
RoyDaleOne (talk|edits) said: | 13 June 2008 |
| It is the Court's discussion of the law that was noteworthy in Hillman v. IRS. | |
