My wife and I started an LLC for our rental property business. We are in a unique situation where we started the LLC after acquiring our first investment property. So we have one property that is owned by us in name and the other is owned by the LLC. I know now that I have to treat the financial reporting separately. I will file a 1065 only for the financials of the property owned by the LLC and will report rental property finances with my standard tax return.
However we ran into a situation with of property manager that we were not expecting and need help knowing what is the proper path forward. Our property management company manages our properties under one account. When we opened up the LLC we gave them our business name.
They generated a 1099-MISC under the name of the LLC however reporting the total income for both properties. We are unsure how to advise our property manager how to correct this. Our thoughts are the following.
Correct the 1099-MISC for the name of our LLC to reflect just the finances of the property owned by the LLC.
What about the remaining income ? Should a second 1099-MISC be generated just under the name of my wife and I ?
The technically correct way would be to have the property management company report the income separately; one to you personally and one to the LLC.
Having said that, don't stress here. The end result will be the same since I assume you and your wife file a joint return.
What I would recommend is report all the income reported on the 1099 on the 1065. This will avoid a matching notice. Then reflect the income earned by the rental you own individually as an expense on the LLC return. Title this "income reported on individual rental" or something along those lines. Then make sure you report this "expense" as income on your 1040 Schedule E.
As stated previously, at the end of the day (end of preparing your tax return) all income and expense will be reported and the appropriate tax liability computed.
For simplicity sake:
Report the 1099-MISC on the 1065 for the "ONE" property listed on the 1065's SCH E. For the amount of rent on that 1065 that applies to the other property on your personal 1040 tax return, enter that on on the 1065 as a miscellaneous expense in the rental expenses section of the 1065. Label that miscellaneous expense something like "rental income paid for personal rental" and leave it at that.
This way, on the 1065 SCH E it's "as if" the LLC paid the rent for the other property directly to you as a person who files a personal 1040 tax return, thus making it a fully deductible expense by the LLC.
Then you'll enter that same amount as rental income on the SCH E that gets filed with your personal 1040 joint tax return.