Form 1065/Form 8825 Income/Expenses

[SSHey]

My husband and I have rented our a property for years and have always filed income/expenses on Schedule E. 

The year saw (2023) a big change.  The property was occupied from Jan 2023 - Aug 2023 as usual, however, in September 2023 we had to obtain an EIN (long story) for a multi-member LLC which now requires us to file form 1065.  We're in the process of filling out form 1065 but we are at a loss on what the start date should be (since we have had this property for years), how to calculate the depreciation (since we have had the property for 20 years) and what income/expenses to claim on this form 8825. 

1) Would the statt date be Sept 2023?

2) We have been depreciating the property on Schedule E for years, so how can we determine how much to appreciate on form 8825 if the start date for the LLC is September 2023?

3 Do we only claim the income/losses from Sept 2023 thru Dec 2023, while claiming the inccome from Jan-Aug on our personal income taxes? 

Please help.

[Rick19744]

There are many questions related to your question: 

• In what state do you reside?
• Who owns the property?  Doesn't sound as if the LLC owns the property?
• What event caused you to obtain an EIN?
• Did you form an LLC in the state in which you reside?  This is essentially asking if you have a legal entity?
• What date did you use for the EIN application?

[SSHey]

- We are in NC.  The LLC was created in NC where we reside.  The property is in NC.

- My husband owns the property.

- We created an LLC for the property some years ago and claimed income/expenses on Schedule E for years.  Last year, we had a tenant that we had to evict.  The magistrate told us we had to file the forms in the name of the LLC.  Fast forward, once the case was settled, we received the rent bond check in the name of the LLC.  So we couldn't deposit the check in our account we normally use for the rental property.  We were told we had to acquire an EIN and open a business account in order to deposit the check.

- The date of the EIN is 9/6/2023.

[Rick19744]

Some follow-up comments:

• I believe you need to meet with some professionals to have everything documented correctly.
  
  • Attorney for possible title changes as it's not clear on how the property is titled
  • Tax professional to discuss prior year incorrect tax handling.  Maybe just move forward as noted below.
• When the multi-member LLC was created "for the rental", at that time you needed to contribute the property to the LLC; and the property should have been titled in the name of the LLC.
• Then you should have technically been filing a form 1065 and issuing a K-1 to the member's.
• The end result would essentially be the same, but the form of how this was being handled was not correct, at least based on the limited facts.  
• Since you were not filing the form 1065, you could get hit with penalties for not filing the form 1065 timely, and possible a couple of other penalties.  These could possibly be abated through some correspondence, but one never knows with the IRS.  
• Since you used 9/2023 on the EIN, then that is the date I would use for the 1065 start date.
• This means you would have part of the year on Sch E as you have done in the past, and then from 9/6/2023 the activity would be reflected on the form 1065.
• Depreciation would be a "step into the shoes" type transaction; meaning nothing changes.  However you would need to transfer all the property into TT Business for depreciation to be handled correctly for the 2nd part of the year.
• As noted above, it may be in your best interest to have a tax professional help you get started in the right direction for this initial change year.