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Can rental property management be considered as self employment?

I have one rental property that I solely manage. Can I consider it as self employment so that I can open Individual 401k fund from that employment?  If I open LLC and be the sole owner, does it help? I want to contribute to my 401k from that employment as an employer. I am already contributing to 401k from my work as an employee. I am hoping that if I contribute to 401k then I can reduce my tax liability.

 
 

 

 

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2 Replies
Carl
Level 15

Can rental property management be considered as self employment?

I understand what you're desiring to do here. But the chances of it getting you audited are extremely high, and you would most likely lose in the audit. The fines and penalties with the IRS, combined with the fines and penalties for contributions to a tax deferred retirement plan that money did not qualify you to contribute to, would be financially devastating to you. Any hope of a comfortable retirement would be gone then.

With only one rental property, if you are not in the real estate business already as your primary source of income, thus qualifying as a real estate professional, then there's no way this is self-employment income, by any stretch unfortunately.

Now it's possible that if you convert the property from long term residential rental, to short term rental property (such as VRBO or AirB&B) you might be able to meet the requirements for that to qualify as a SCH C business. But you should seek the services of a tax professional on just what the requirements are, before making any such decision. Of course, doing this will not in any way change your 2020 or earlier tax returns.

Can rental property management be considered as self employment?

Thank you @Carl. I also wasn't sure I could do it but your answer proves it now. I appreciate your quick response! Uncle Sam needs my help, so I will do so this year too 🙂 

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