OK, think I just answered my last question also - per ChatGPT.
I'll put this out here just in case anyone else has this question and trying to get clarity.......
Example of When This Applies:
If a partnership owns a building with residential apartments and provides services like maid service, laundry service, or maintenance beyond what would typically be expected from a landlord (such as replacing light bulbs or fixing leaks), the income from these services may be considered self-employment income.
Example:
- The partnership owns an apartment building and offers regular cleaning services for tenants.
- The rental income from the building itself would be passive income, but the fees for cleaning provided to tenants would be classified as income from services provided to rental occupants.
- This income is subject to self-employment tax, and it will be reported on the self-employment earnings worksheet and included in the partner's self-employment earnings.
When Does It Not Apply?
- If the partnership is simply renting out property without providing significant services to the tenants (like just renting apartments with no additional amenities or services), the rental income is generally not subject to self-employment tax.
- In this case, the partnership would not report income from services provided to rental occupants on the self-employment earnings worksheet because the rental income does not rise to the level of business income.
Summary:
- Income from services provided to rental occupants includes income earned from providing significant services (like cleaning, repairs, etc.) to tenants.
- This income can be classified as self-employment income and will be reported on the self-employment earnings worksheet of Form 1065 if it qualifies.
- The income is subject to self-employment tax, and each partner's share will be reported on their Schedule K-1.
