Moving Rental to LLC. Tax implication

[rmjeeves]

My wife and I own 2 rentals in WA state (community property). As part of estate planning and asset protection,  I am going to move the ownership under saparate LLCs. Now it will be disregarded from IRS perspective. Guessing this is by default.  Question – Am I doing anything different on my 1040? Do I have to report anywhere the name of the LLCs and EINs or ignore this change and nothing changes on my individual taxes (filing jointly) or how I do my taxes since those LLCs will be disregarded? Thanks.

[pk]

@rmjeeves  unless  you choose  ( by telling IRS that your LLC intends to file as an entity -- C-Corp   or S-Corp or Partnership ) to be an entity by filing form 8832 with your first filing  (i.e., after LLC registration), you show your incomes / expenses etc. on Schedule-E for the rentals.  The veil of protection provided by LLC continues whether you choose the default or actual entity classification. The paperwork for a C-Corp is a lot more but it also provides the most protection.  An attorney is your best source for how to protect your wealth in such cases.   But from a tax perspective whether an individual or a disregarded entity owns/operates the rental property ( ies ), it is the same workload and paperwork.

Does this answer your query?   Is there more I can do for you ?

[Carl]

If it's a multi-member LLC  then you'll report all rental income/expenses on a 1065 Partnership/Multi-member LLC. From that, a K-1 will be issued to each partner/owner which will be needed by each partner/owner to complete their 1040 tax return.

All the rental income/expenses will be reported on form 8825 as a part of the 1065 return. The partnership will then issue each member/owner a K-1. When the K-1 is entered into a TurboTax home user version all the information concerning the rental income/expenses will end up on page 2 of the SCH E.

If you elect to have the LLC "treated like an S-Corp" for tax purposes, the above all holds true for the most part. But you'll be filing an 1120-S for the S-Corp, instead of a 1065.

Take special note that a partnership return or corporate return is due by March 15 of the tax year. The penalty for filing late is $205 per month for each member/owner. So if there's two of you and you file one day late, the penalty would be $410.

Transferring your rental property from SCH E on your 1040 return to a partnership or corporate return can be a little tricky. So I would highly suggest you seek the services of a tax professional for this at tax filing time. They'll need a copy of the last tax return you filed reporting your rental on SCH E.

I suggest a professional for this because like I said, it's tricky. Even the tiniest of mistakes can (and will) cost you dearly later down the road. The potential back taxes, fines and penalties that could be assessed would make the cost of professional help for that first year seem like a pittance in comparison.