Business & farm

I don't understand why rental real estate cannot be a sole proprietorship.  If I was single, bought a condo, and used it only for short term rentals, I wouldn't imagine forming anything other than a sole proprietorship.  A lawyer I spoke to about this, informally, had no problem with my changing the rental business from a husband-wife partnership to a sole proprietorship.

Yes, the rental income in 2021, before we formed the partnership, was reported on a Schedule E.  I had heard that it was a good idea for a rental property business to be an LLC because you could protect your other assets if you were sued for liability.  So, when I created the LLC, I chose partnership because I thought it would be nice to have my wife and I co-own the business.  I already had a sole proprietorship where I sold air purifiers (www.midwestpureair.com, if you're in the market).  This was before I had heard that if the funds of the business are *ever* co-mingled with your personal funds (ours funds have, but only to the benefit of the partnership... that is, we contributed capital to the partnership when we didn't have enough money from rents to pay the mortgage and HOA fees), a smart lawyer would find this out during a liability suit and the LLC would not protect our assets.  So, at the moment, it's a partnership LLC, but I do want to change it to a sole proprietorship simply because the taxes are so much easier.  I could do the Schedule E with TT Home and Business rather than having to buy TT Business which is twice the price and I'm not even certain that TT Business allows me to do a personal tax return, which might mean that I have to buy both TT Home and Business for my W2 taxes, my wife's W2 taxes, and my Schedule C for my air purifier business, PLUS TT Business for the 1065, 8825, 4562, and K-1's, or struggle with them manually every year, which I don't want to do.

So, if I understand correctly, you are saying that the property used by the partnership would be converted to personal use for just several hours, only to be then taken over for rental use by the sole proprietorship?  What my lawyer friend informally said was that I would write a contract with my wife relinquishing my 50% ownership in the partnership, which would have the partnership default back to a sole proprietorship, if I understood correctly.  The mortgage is and has always been in both of our names and was never transferred to the partnership.  We simply used the property we jointly owned to run a business we jointly owned.  It is my understanding that a family member can be an unpaid employee of a family business, so that I can still do the taxes, hire plumbers, and seal the grout at no cost to the business where my wife is the sole proprietor.

But the partnership *was* formed several months after we bought the property.  We bought the property on September 1, 2021 and we began using the property to make money for the partnership on Jan 1, 2022.  Before that, we had one tenant that was left over for the month of September from the previous owner and that income I claimed on a Schedule E on my 2022 1040... and yes, I would have paid Illinois state income tax had we made a profit, but we didn't.

I think it best that I pay a lawyer to draw up the papers to change the partnership to a sole proprietorship and I think that I can say in the contract that I relinquish all income starting from Jan 1, 2023 to my wife, which would then allow us use the Schedule E on our 2023 taxes.  Meanwhile I will try telling TT Home and Business that the property was changed to personal use on Dec 31, 2021 to get TT to stop keep bugging me about a Schedule E.  Then I'll find where to enter income from the two K-1's I generated (one for my wife and one for me) in my 2022 taxes.

Do I have this right?

Thanks.