Rental income is “passive”. That’s because all you do with rental property on a recurring basis is just “sit there” and collect the rent every month. You are not “doing anything” to “earn” it on a recurring basis. That’s why rental income is reported on SCH E. Rental income is subject to regular tax, but is NOT subject to the additional self-employment tax.
For additional information please refer to the following link:
Is Residential Rental Income Reported on Sch E subject to SE tax?
If a multi-member LLC files the default filing method of filing Form 1065 as a partnership, it would report it's income and expenses from the one residential rental property passive activity on Form 8825 in the Partnership return. As long as the residential rental property is still considered a "passive" activity, the net gain/loss from the rental does not carry to the 1065 itself, but instead "passes through" to the K-1s for reporting to partners.
Generally, as long as the partner(s) is not a real-estate professional and the partnership's business activities are not the rental, and the residential rental activity does still qualify as a passive activity for the partners in the partnership, then the residential rental activity net gain will not be subject to SE tax.
For additional information refer to the following link:
LLC residential rental subject to SE tax?
