Hi - I wanted to know if I need to pay self employment tax for rental income from a duplex that I file under schedule C. The rental property is under LLC and I'm the only owner of the LLC.
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Rental property income is not considered wages unless you qualify as a real estate professional.
More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.
You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.
Rental property income is not considered wages unless you qualify as a real estate professional.
More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.
You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.
I'm afraid you were doing it right before. Unless you are providing substantial services to your tenants--housekeeping, recreation, etc.--you should report this income on Schedule E. Having a single-member LLC doesn't change that. The other response you received was courteous and thoughtful, but it was not correct. You should not be paying SE tax on this income, as it is passive.
Hello Aaron -
Different CPAs have given me different answers on whether self-employment taxes need to be paid on LLCs containing only real estate. Is it correct to continue Schedule E reporting of the unchanged real estate holding that has recently been put into an LLC? Just change the name of "property X" to "property X, LLC"? Sounds logical, but is it? And - how does the new LLC formation transfer any required data to the State tax forms?
Thanks, Tanja9
The previous response from Aaron is correct; in the absence of the rental property being used as a hotel room or BnB where you are providing significant service, the proper income tax return reporting is Schedule E, not Schedule C. Putting the property into the LLC has no effect here. In fact, a single-member LLC is a "disregarded entity" when it comes to tax reporting, i.e., the LLC doesn't exist in this situation, it's all "your" economic activity.
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