Do I need to pay self employment tax for rental property income

[zeeshan_abbasi]

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.

[zeeshan_abbasi]

Thank you for the quick response.  Yes, I'm reporting on Schedule C because the property is under the LLC name which is owned 100% by me.  I file under 1040 Form and the 8852 appears to be for 1065 filing and for partnership (between 2 or more persons).   I used a Business tax program to file last year which used Schedule C and also attached schedule SE.  In the past I use to file with schedule E, when the LLC wasn't formed.

[JaneL2]

If you file on Schedule C, you will pay Self-employment taxes on the profit.

[JaneL2 · Accepted solution]

Rental property income is not considered wages unless you qualify as a real estate professional.

     You qualify as a real estate professional for the tax year if you meet both of the following requirements.

• 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.

Your rental property should be reported on Schedule E. Are you reporting it on Schedule C because the property is owned by an LLC?

Landlords who own their properties through business entities don’t use ­individual Schedule Es to report their rental income or losses. Instead, the partnership, limited partnership, LLC, or S corporation files IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, to report the income and deductions from the property owned by the entity. This form is very similar to Schedule E.

Form 8825:
http://www.irs.gov/pub/irs-access/f8825_accessible.pdf
For more information about Form 8825, click the link below:
http://www.irs.gov/uac/Form-8825,-Rental-Real-Estate-Income-and-Expenses-of-a-Partnership-or-an-S-Co...

[Aaron_M_]

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.

[Tanja9]

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

[TomYoung]

@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.