Thank Joseph for your very informative reply. It's not a SMLLC, but a 2 member LLC. Since the 1065 includes other properties and we have filed 1065 for many years for the rental business, so it is preferred that we keep filing 1065 for this property.
I like your solution that I claim it in schedule E and deduct the same amount at the miscellaneous expense. My question is: since the 1099-G income is input in Schedule E as rental income, not in the schedule 1 under Other Income (taxable grant in 1099-G), may IRS thinks that I did not report the amount in 1099-G? Will this increase the chance to be queried or audited?
Thank you so much for your help!
