How to use Turbo Tax if I have Personal Property and also have 50% ownership of a Real Estate Partnership

[Toksica]

I have been using Turbotax for years to file my taxes but last year, I created an LLC of which I own 50% to acquire properties. For the next Tax season, I don't know how to go about filing my taxes because of this 50% ownership LLC.

Do I just take 50% of the income and expenses of this partnership LLC ; and, how do I claim 50% depreciation for this partnership

[rjs · Accepted solution]

The LLC with more than one owner is treated as a partnership for income tax purposes. (See below for a possible exception.) That means that the LLC has to file it's own Form 1065 partnership tax return, separate from your personal Form 1040 joint tax return. The partnership return will include a Schedule K-1 for each partner. You have to enter the information from your Schedule K-1 in your personal tax return.

To prepare the Form 1065 partnership return for the LLC you have to use TurboTax Business (which is not the same as TurboTax Home & Business). TurboTax Business is available only as CD or download software, and only for Windows. Go to the following link for more information about TurboTax Business, and to purchase it.

TurboTax Business

To prepare your personal Form 1040 tax return you need one of the personal TurboTax editions. You can use TurboTax Online Premier or higher, or any edition of the CD/Download TurboTax software. TurboTax Business cannot prepare your personal Form 1040 tax return, and none of the personal editions of TurboTax can prepare a Form 1065 partnership return, so you will need two separate TurboTax products.

If the only members of the LLC are you and your spouse, and you live in a community property state, you have the option to either treat the LLC as a partnership, as described above, or treat it as a "disregarded entity." The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

[Toksica]

OK...Thanks for the reply. Very helpful.

I currently use TurboTax Premier version that handles Personal and Real Estate filings. If I buy this additional Turbo Tax Business version to file for the partnership and I get a Schedule K1 from it, where in the TurboTax Premier version do I enter information from the Schedule K1 I got. Basically, my question is, now that I have this Schedule K1, how do I use it to enter information of my 50% ownership in the Premier copy of Turbo tax

[VolvoGirl]

To enter a K-1 go to

Federal Taxes Tab or Personal (Home & Business version)

Wages and Income

Then scroll way down to Business items

Schedules K-1, Q - Click the Start or Update button

Be sure to pick the right kind of K-1. There are 3 kinds, 1041, 1065 & 1120S

Enter each k-1 separately.

[Mike9241]

you need two different products.  TurboTax Business to do the partnership return. it can only be installed on a full Windows computer OS above windows 7. it seems you have no experience with preparing a partnership return. I strongly recommend you use the services of a tax pro the first year. Getting off to a wrong start can be difficult to correct especially if not caught in the earliest years. obvious issues could result in an IRS audit but that could be two or more years after filing the initial return. 

for your personal return online either TurboTax Premier or TurboTax Home and Business can handle your K-1 partnership income.  all desktop versions handle K-1's just that the higher versions provide more guidance.

the pro would prepare the partnership return which would include a K-1 for each partner. you then would enter the info from your k-1 into your personal return. 

note that a partnership return is due March 15th (not April 15th) of the following year.  late filing penalties are about $200/month/partner. filing of the return can be extended.

[Carl]

Do I just take 50% of the income and expenses of this partnership LLC?

No. The partnership, which I assume is a multi-member LLC since you refer to it as a "partnership LLC", will file it's own IRS Form 1065 Partnership/Multi-member LLC tax return. Not sure, but I do believe the due date for the 1065 is March 15th. 

how do I claim 50% depreciation for this partnership

You don't - at least not directly. The partnership is required to issue all members a K-1 which each member will need in order to complete their own personal 1040 tax return. Your share of the depreciation will be reflected on the K-1.

If I buy this additional Turbo Tax Business version to file for the partnership

So am I correct in assuming "you" will be the one completing the 1065 and issuing K-1's to all members of the partnership? I point this out, because only one 1065 needs to be filed. Therefore, only one person has to use the TurboTax Business program to complete the 1065 return. That person is responsible for issuing K-1's to all members of the partnership.

and I get a Schedule K1 from it,

You seem to be implying "if" you get a K-1. So let me clarify if I may. There's no "if" here. All members of the partnership will get a K-1. Yes, there are exceptions. But in the case of real estate I seriously doubt a K-1 won't be issued to all members since there's depreciation here that affects all members.

where in the TurboTax Premier version do I enter information from the Schedule K1 I got.

Basically, without trying to sound sarcastic, you'll enter it in the section that specifically asks if you have a K-1 to report.  In Turbotax 2021 Home & Business desktop version (which is what I use) that will be under the Personal/Personal Income tab in the section called Business Investment & Estate/Trust Income.

[Toksica]

Thanks for your response. This is the first year of our Real estate partnership LLC and I want to make sure I am doing right; I have the followup questions:

1) So you said we should file the 1065 form with TurboTax Business; which is the federal filing I assume you meant. Do I also have to file a State Business tax using Turbotax business. My software copy said it had no State tax form for me.

2)You said to give Schedule K-1 to the partners and that will show the portion of each partner in the income or loss that they need to include in the personal tax filings. My question is that, doesn't that create a double taxation ....if I had already filed that same income at the Federal level with the Turbotax Business (I assume if income was made, I would have paid taxes on it when I filed). and the partners have to also file tax returns on the same income.

I know Corporations pay taxes on business income but Shareholders don't have to file their portions of that income if they didn't receive distribution of dividends.

I our case, we are reinvesting any income we might have and so I am wondering why a partner needs to file a Schedule K-1 for income they had never received.

I apologize if this 2nd question was too elementary ...I was just comparing LLC ownership to a shareholdings in a big Corporation:)

[GeorgeM777]

@Toksica...Form 1065 is essentially an informational return.  Because partnerships are a "pass-through" entity, meaning that all income and/or loss for a given tax year passes through the partnership to the partners based on their respective ownership in the partnership, the partnership does not pay any income tax.  In other words, there is no double taxation because the partnership should not be paying any federal tax.  Rather it is the individual partners that are responsible for paying their respective share of any income tax due on the income received. 

You are correct when you indicate that the partners will pay tax on their distributive share of income, and they will also, if applicable, receive their distributive share of any partnership loss.  Shareholders of publicly traded corporations do on some level confront the double taxation issue, because corporations will pay tax on their earnings, and then when, or if, those earnings are distributed to shareholders in the form of dividends, then the shareholders pay tax on those dividends.  Therefore, because the corporate earnings are taxed, and the dividends are also taxed (and the dividends come from the earnings), there is the view that corporations and shareholders contend with the double taxation issue. 

[Toksica]

Thanks for letting me know that the form 1065 is just an information return tool. I had been delaying submitting it because I felt it might trigger a tax payment which might trigger the double taxation I was talking about. As per my other question, do I need to also submit a State LLC business filing. Maybe I don't need to i.e. Turbotax Business software didn't have any State form for me to use. I hope somebody can clarify if I need to file a State LLC Business tax also

[GeorgeM777]

A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, therefore, you should check with your state if you are interested in starting a Limited Liability Company.  Consequently, TurboTax cannot advise you whether you should or should not create a LLC for your business.

As a way of background, owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs (SMLLC), which have only one owner.

For tax purposes, you may have heard the term "disregarded entity" when referring to SMLLCs' and taxes.  That is because the IRS considers a SMLLC a "disregarded entity", meaning there is no separation between the business and its owner for tax purposes (and tax purposes only; legal issues are a different matter). By default, the IRS taxes a SMLLC the same as a sole proprietorship.

However, as a SMLLC, you do have the option to be taxed differently, and perhaps this is something you might consider going forward.  For example, while the business income tax obligations of a SMLLC are the same as a sole proprietor, the SMLLC may choose to be taxed as a C Corporation or S-Corporation. This is something you can’t do if you elect to do business as a sole proprietorship.

There are many things to consider before electing to be taxed as a C-Corporation or an S-Corporation and therefore, you should discuss this issue with your personal tax advisor.