Rental property owners- tax question...

carnutzzz · 04-09-2006, 03:39 PM

Hi,

Using TurboTax to do my taxes and '05 was my first year with a rental property.

I see that TurboTax has a form for rental property income/expenses that works well, but it also has a separate form for business income/expenses (schedule C). Which one do I use given that I set-up an LLC last year, but just got my FED Tax ID # this year.

Do I just use the basic rental sheet (which doesn't ask for a FED Tax ID number) for '05 since the Tax number wasn't valid last year, and then use the schedule C form for '06?

Do I use the schedule C form since I have a Fed tax ID now? This schedule C form isn't set-up very well for capturing rental expenses like mortgage interest.

Thanks!

jhc · 04-09-2006, 03:55 PM

I think you are supposed to use schedule E for renatl property. This is from TurboTax website:

Rental properties are, by definition, passive activities and are subject to passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses.

In other words, if you have losses from a passive activity, such as a rental property you own, you can't always take those losses on your tax return in the current year to reduce income from non-passive activities such as wages, salary, interest, dividends, or gains from sales of stocks. Passive losses can offset income from other passive activities. If you have a net passive loss in any year, that loss is generally suspended (delayed to a later year) until either you have passive income or you completely dispose of the passive activity.

But if you actively participate in a rental activity you can deduct up to $25,000 of the rental loss. To actively participate means that you own at least 10 percent of the property and you make management decisions in a significant and bona fide sense, such as approving new tenants, setting rental terms, approving improvements, and so forth.

This exception isn't available to everyone. If you have modified adjusted gross income over $100,000, your maximum loss available decreases by $0.50 for every dollar over $100,000. The maximum loss is completely phased out when your modified adjusted gross income reaches $150,000. Modified adjusted gross income is determined by calculating adjusted gross income without regard to deductions for IRA contributions or pensions, taxable social security benefits, adoption assistance payments, income excluded from U.S. savings bonds used to pay higher education tuition and fees, interest on qualified student loans, the tuition fees deduction, and any passive activity loss of taxpayers in a real property business.

turbo6bar · 04-09-2006, 05:41 PM

jhc is correct. Use Schedule E for your rental property. I am probably wrong, but Schedule C would subject your rental income to SS, FICA/Medicare.

If you are using Turbotax Premier, you need to put your rental under "Rentals and Royalties" of the Income tab. This section will take care of your rental income, expenses and depreciation.

carnutzzz · 04-10-2006, 09:38 AM

Cool- I have it all in there now so hopefully I'm set.

BUT- since I have an LLC (sole proprietor), and a fed Tax ID number, don't I at least have to ackknowledge it somewhere on my return? I'm thinking sched C.

Since I didn't receive any money under the LLC last year, I was going to list the LLC on Sched C, but not show any income/expenses. All of those will be on Sched E, since all rent checks for last year were paid to me personally. Also, the house mortgage is in my name personally, not the the LLC.

Is that right? Don't I have to acknowledge the LLC somewhere on my return?

not sharp · 04-10-2006, 12:12 PM

carnutzzz,

File schd E for rentals, even next year when the business struture is an LLC. The EIN is for federal use - withholding taxes etc. Interest paid on the mortgage goes on schd E. you do not have to acknowledge the LLC you began the LLC as a way to protect your assets from liabilities arrising via the LLC. So, the rental should be tranfered to the LLC's name as well as insurnace, util, etc.... , to draw aline between your activities & the LLC. So, anyway, I type the name & EIN of the LLC on the top of sch E.

carnutzzz · 04-10-2006, 02:15 PM

not sharp- yes, those are my intentions.

I had to wait a little bit after purchasing the house as I bought it as a 2nd home (better rates), not an investment so I din't want to transfer the title too quick.

In TurboTax, there is no place to enter the LLC info on Sched E. Can I leave it off entirely?

turbo6bar · 04-10-2006, 03:37 PM

carnutzzz, this is just my amateur opinion. I have none of my rentals under an LLC. I run sole proprietor status.

I would use the SSN that is registered for your mortgage. This would match the mortgage interest to the tax return you are filing.

If your LLC had partners and/or the LLC is qualifying for mortgages, then I imagine it would be different.