Accountants? How do I handle this LLC/real property tax return issue??

[McLovin]

This issue seems to cause so much confusion. I think the tax treatment is fairly straightforward, but I can't figure out how to handle this in Turbotax.

Husband and wife own a rental property, held in an LLC, in a community property state. H and W are the only 2 members of the LLC, 50/50.

The first issue is whether this LLC can be treated as a single member LLC for tax purposes. So that a corporate or partnership return doesn't need to be filed, i.e., the LLC is "disregarded" for tax purposes.

That seems pretty clear - a H and W LLC in a CP state can be treated as a single member, disregarded entity LLC.

From the IRS:

"You are husband and wife residing in a community property state and the only two members of a Limited Liability Company (LLC).

Under Revenue Procedure 2002-69, you have the option of treating the LLC as a multi-member LLC or as a single-member LLC. "

But how is this handled by Turbotax? For the life of me, I can't figure it out. The problem is Turbotax doesn't seem to recognize the above situation, i.e., one where you have an LLC with 2 members, but it is treated as a single member LLC. At least I don't see it.

Any help greatly appreciated!

[JuiceMan]

Not sure on the details but just wanted to check. You are using TurboTax Business not Home & Business, correct? I ran into a similar situation last year and found out that only the Business edition has a lot of features that a multimember LLC needs. Sorry I can the of more help.

[Don Plumley]

I use TurboTax - but the LLC return is external so I just enter the net income from the Partnership K-1.

[jwasbury]

Does the LLC have a taxpayer ID? When you apply for the TIN, it's customary to check a box indicating what type of return(s) the entity is expecting to file. Just curious if the 1065 box or the "disregarded entity" box was checked as this would let us know what paper the IRS is expecting.

Looks like you have done the research. You will probably just need to "fool" turbotax into doing it the way you want. In the case of rental real estate, you report this on page 1 of Schedule E. Don't follow the interview process, just use "go to forms" and input directly in the Schedule E input forms.

[McLovin]

Thx. There is an ein because the bank required it to open accounts. I think I messed up on that because on the ein paper I received back, it says the IRS is expecting a 1065. I am in the process of correcting that by letter and phone calls.

I think you are right. This is a schedule e issue. Its just that it isn't addressed anywhere by turbo tax. They do address it in the disregarded llc context for sceh c. They say 2 separate schedule c should be done, with each spouse reporting half of the income and half the expenses.

I've played around with that a bit but it's not perfect so far. The depreciation doesn't seem right.

Also, is there anywhere on schedule e to identify the ein? Or anywhere else on the 1040? It seems like I should identify the ein somewhere, but I can't see where.

Thanks for your help!

[McLovin]

But then I read this:

https://ttlc.intuit.com/questions/1167231-multi-member-llc

One post from that thread:

"If the apartments is passive income, I believe you meant Schedule E. Because apartment rentals do not generate self-employment tax, I can't see any reason not to file one Schedule E."

It seems like the only reason two separate schedule Cs is because of self employment tax reasons.

But since apt rentals don't generate self employment tax issues, the LLC spouses should be able to file one schedule E. That Sched E would simply say that the spouses are both the owners of the property. The tax return would be done exactly as if the property were held in the names of the spouses, and not by the LLC.

That makes sense to me, but then there will be no mention anywhere on the tax return about the LLC, or the LLC's EIN/TIN number. I wonder if that's ok? It would certainly be the easiest way of doing it.

[eddie914]

Rental Real Estate is reported on Schedule E ... it is by default passive income.

The LLC (two member taxpayer/spouse community property state) is disregarded for federal tax purposes. An LLC is simply a state business classification.

DO NOT forget depreciation of the building (not land).

PM me if you need additional help. I have a public accounting practice.

Good Luck,

Eddie

[Scooter]

Yes, PM Eddie. He's my go to accountant for my clients.

[jwasbury]

^Schedule E...

So long as you disabuse the IRS of their 1065 expectation, you will be fine. The EIN at this point was soley for the purpose of getting the bank accounts open. If you have intentions of using the LLC as a vehicle for wealth transfer (such as gifting LLC interests to your children, if you have any), you'll have to prepare a 1065 for LLC at such time when the entity's membership expands beyond the two spouses and then your EIN will come into play. Then each member will receive a K-1 which will be reported on their respective 1040s.

[McLovin]

So just 1 schedule E? Check the box on Turbotax "This property is owned by both of us."

Basically, for the tax return, I will be ignoring the existence of the LLC, and treating the property as though it were held in my wife's name and in my name, individually. There won't be any mention of the LLC, or the EIN/TIN anywhere on the return or the schedules.

(The bank is going to send a 1099INT to the LLC with the LLC's EIN. Does that matter?)

Thanks for your help. Once I get this straightened out, I'll be good to go forever. I just want to make sure to get it right this first time.