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@Critter-3 @Yes, semantics but I understand I do need to be clear. I do the books. Pay the bills, keep the loan in balance. I assume this would be “materially participating” as would our partner who does much of the construction. My husband does not really handle any specific tasks. So we do not take any draws. We just wait for the sale and hope it’s profitable! From what I’m learning here, that profit would be taxed as ordinary income and subject to SE taxes (although we both meet FICA maximums via our regular employment).
@tagteam Yes that is correct. No Sch C for husband and me. Yes, info form K-1 is to the individual tax return 1040.
FICA consists of 2 parts, social security and Medicare. Social Security has a cap, but Medicare does not. You will have to pay 2.9%* Self Employment tax (the 1.45% employee half of Medicare + the 1.45% employer half.)
"Perhaps my husband is passive?" Possible, but probably not. He sounds more like a "business owner" than an "investor"
*Actually 92.35% x 2.9% = 2.68%.
Thanks. Fully aware of the 6.2 and 1.45 and the additional 0.9 as we pay it all. Guess the 2.9 would apply. Ugh!
@Critter-3 I am making a mock partnership (LLC) return using TT Business 2019. I will enter my gross sales proceeds from this home (totaling $442,000) as Business Income - Product Sales in the Income screen, then enter the capitalized costs of this home (totaling $462,000) as Cost of Goods Sold in the Your Deductions screen. I'll also reconcile the Schedule L and answer the various questions, but we should not need to detail out anything under the Compensation and Benefits on the Your Deductions screen as we had no payroll and 1099s for outside contractors were issued in either 2019 or 2018 (home was completed in 2019 and sat for about 6 months prior to selling in March 2020). We have a small state license annual fee of $50 which will go under the Business Expenses - Taxes and Licenses (as this is for the LLC, not only for the spec house), but nothing else that isn't already capitalized in the $462,000 noted above. The capitalized costs include the realtor commission, interest paid on the underlying construction note, as well as all of the materials, labor, etc.; therefore, I don't have to detail them elsewhere, correct?
I am just wanting to clarify that these screens are the appropriate place to enter these items.
Thank you!
Just curious if anyone has any further thoughts on this!
Also, my husband and I loaned the LLC funds, so we need to recognize the interest income (personally) as well.
I'm wondering where, in TT, do we enter the interest income so that it flows thru to our K-1?
The interest expense shows up on the partnership form 1065 on line 15 as a deduction from partnership income. The partnership should issue you a form 1099-INT that you can use to report the interest income on your personal tax return. You can issue the 1099 form through the TurboTax Business program, by using the link to QuickEmployer Forms you will see in the Business Info section of TurboTax.
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