If you're holding the property as community property, then the Rev. Pro. is applicable notwithstanding the fact that the property is located in a common law state.
Your actual interest in the LLC (membership) is personal property; the LLC is the entity that owns real estate.
Not sure why not:
Section 4, .03 reads:
.03 A change in reporting position will be treated for federal tax purposes as a conversion of the entity.
Correct.
Section 301.7701-3(b)(1) provides that, unless the entity elects otherwise, a domestic eligible entity is (i) a partnership if it has two or more members; or (ii) disregarded as an entity separate from its owner if it has a single owner.
Section 301.7701-3(c)(1)(i) provides that, except as provided in § 301.7701-3(c)(1)(iv) and (v), an eligible entity may elect to be classified other than as provided under § 301.7701-3(b), or to change its classification, by filing Form 8832, Entity Classification Election, with the service center designated on Form 8832.
Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-3(c)(1)(i) will be effective on the date specified by the entity on the Form 8832 or on the date filed if no date is specified on the election form. The effective date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.
Also, to clarify, since you live in Washington and the rental is in Florida, is the LLC a management company with employees or the short-term rental property?
It seems like it would be difficult to meet the requirement of materially participating as a Qualified Joint Venture compared to an LLC filing as a Partnership.
Additionally, filing as a Qualified Joint Venture does not change much from filing as a Partnership. Qualified Joint Ventures are usually chosen for the advantage of each spouse claiming half the FICA which each Partner does for the income reported by the Partnership.
What do you see as the reason to change reporting?
You don't have to do anything because of the Rev. Proc. (treat it the way you want, LLC or disregarded).
There is no need to file an 8832.
Furthermore, the property should be reported on Schedule E (1040) or Form 8825 (1065) unless you are a real estate dealer or provide significant services to the renters.
@QandA1 wrote:...........so it would be allowed to treated as a business right?
No, not for the purposes of reporting on Schedule C.
You would still report on Schedule E but any net loss would be nonpassive.
@QandA1 wrote:
But sch E with none passive has a limit on loss of 25$k
No, there is no limit for material participation.
The $25k limit is for active participation (different standard).
@QandA1 wrote:
that’s not true there is a specific law that disallows material participation test to be used for rentals unless they meet the real estate professional test also.
If you materially participate in your rentals as a real estate professional, then any loss is nonpassive per Section 469. The average period of "customer use" is not a factor.
There are some people, including tax professionals, who ascribe to the notion that short-terms rentals combined with material participation also results in the activity being treated as nonpassive.
I'm going to page @AmeliesUncle at this point. Stay tuned.
The regulation that is applicable here simply takes the rental out of the passive activity loss rules; it does NOT put the rental into the active business/self-employed classification (i.e., Schedule C reporting).
Again, real estate dealers and those who provide significant services to renters are the only taxpayers who report on Schedule C (or otherwise report as would a typical business enterprise).
@QandA1 wrote:So can I amend to report it on the 1040 instead?
It appears from the Rev. Proc. that doing so would be allowed, yes.
@QandA1 wrote:
Can you give a link or irs pub I can look up to those rules?
I'm just going to post a link the Schedule E instructions for now.
https://www.irs.gov/instructions/i1040se#en_US_2023_publink24332td0e1083
Generally, rental real estate activity is reported on Schedule E even if it is also a trade or business activity; however, if you provided significant services to the renter, such as maid service, report the rental activity on Schedule C, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.
If you were a real estate dealer, include only the rent received from real estate (including personal property leased with this real estate) you held for the primary purpose of renting to produce income. Do not use Schedule E to report income and expenses from rentals of real estate you held for sale to customers in the ordinary course of your business as a real estate dealer. Instead, use Schedule C for those rentals.
I'm just commenting to say that TagTeam is correct - the short-term rental with Material Participation goes on Schedule E, not Schedule C (unless you provide "services", such as maid service or meals).
You will need to use the CD/downloaded version to go into the "Forms" to indicate it is non-passive.
As for your question to amend to change applying Revenue Procedure 2022-69, I'm not sure. At first glance, I don't see any restrictions about doing that, but I haven't dug into things too deeply so I could be wrong. At this point, why do you want to amend, rather than just leaving it as it is?
If the LLC does not own the property, is it even involved in the rental?
At first glance, it is just the husband and wife renting the property out. Nothing to do with the LLC.
@AmeliesUncle wrote:At first glance, it is just the husband and wife renting the property out. Nothing to do with the LLC.
Exactly! ......and if the husband and wife are filing a joint return, is there any issue whatsoever?