Transferring a rental property to an LLC

[BrotherRick]

My wife and I have owned a rental property for over 5 years.  Income and expenses were reported on a schedule E.  While doing estate planning, our attorney suggested we move the property to an LLC which was formed on 3/30/2020.  Since there were no liens (or debt), the attorney transferred the property to the LLC.  Based on the posts I read, this may have been a bad idea, but it's done and I need to report my earnings.

Do I just continue to report the income and expenses on the schedule E or do I need to create a new property affective 3/30 and close the old property?

Any help, guidance, or suggestions would be greatly appreciated.  

[Critter-3]

Unless you have to file a partnership return for the LLC  you can just leave the rental on your personal return Sch E like you have in the past. 

[BrotherRick]

Just to verify, I don't have to add a new property and close/end the one I've been using for years?

Thanks for the quick and very helpful response!

[BrotherRick]

And to clarify, it is a single member LLC.

[AmeliesUncle · Accepted solution]

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@BrotherRick wrote:

And to clarify, it is a single member LLC.

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For income tax purposes, a Single Member LLC is "disregarded" (assuming the LLC has not elected to be taxed as a corporation).

That means you report it exactly as if YOU owned it.  So yes, it goes on Schedule E and for income tax purposes can be reported as if nothing changed.

[BrotherRick]

Thank You!  I sincerely appreciate the prompt response.

[TA Investment]

Hi  AmeliesUncle. Just like BrotherRick, my wife and I formed an LLC with just the 2 of us as members and transferred our rental properties to the LLC in June 2020. Because we live in a community property state (Washington), it looks as if our LLC is treated as disregarded entity. We did not elect to be taxed as corporation. On the EIN letter, IRS added SOLE MBR next to my name on the address. My question is whether we are going to file our return just like we own the properties and nothing has changed and the LLC never exists? Thanh you for your help.

[Carl]

my wife and I formed an LLC with just the 2 of us as members

You're already aware of what a waste that was for just a rental property. So I won't delve into that.

But that means you have a multi-member LLC. A multi-member LLC is required to file and IRS Form 1065 Partnership/Multi-member LLC tax return. The 1065 is due to the IRS by March 15th of each year. The late filing penalty is $200 per month, per member. So right now you're looking at a $400 late filing penalty.

To complete the 1065 Partnership/Multi-Member LLC return you need to purchase TurboTax Business. You can get it at https://turbotax.intuit.com/small-business-taxes/

TurboTax Business is not available as an online product, or for MACs. It's for the Windows operating system only.

The 1065 return must be completed before you can even start your personal 1040 tax return. This is because the partnership will issue each partner a K-1, which each partner will need in order to complete their personal 1040 tax return.

I would highly suggest you seek professional "AND" legal help for your first year dealing with this. If the property deed has your name(s) on it, and you change it to, or add the LLC, chances are your lender is not going to be happy when they get the next property tax bill showing that change. This "could" have the potential to create legal issues for you. Additionally, was the insurance company informed of this change and did the agree with/approve it? No answer required really. Just trying to make you aware of the potential pitfalls that could cost you big time here, at some point in time.

[AmeliesUncle]

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@Carl wrote:

my wife and I formed an LLC with just the 2 of us as members

 A multi-member LLC is required to file and IRS Form 1065 Partnership/Multi-member LLC tax return.

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Carl, when the husband-and-wife only LLC is in a Community Property State, it *IS* an option to skip the 1065 and file it on the 1040.  But ONLY in Community Property States.

[Carl]

As yes. I missed that. So basically, they just continue to file the SCH E on the personal 1040 return, and absolutely nothing changes since this is not a SCH C business. Is that right?

[AmeliesUncle]

Correct.

[TA Investment]

Thanks Carl. I earn income from a fulltime job so I'm not sure if I want to pay self employment tax on our rental income. We have 4 rentals. They don't have mortgage and have rental insurance. 

[TA Investment]

Thanks AmeliesUncle.  Are we going to file our return just like we owned the properties and nothing has changed and the LLC never exists? I'm using the PC version of Home & Buz. How are we going to input the business name and EIN? May be we don't need to.

[cstoney04]

What if they're not in a community property state and need to transfer and file the k-1065; in subsequent years is the property removed from the schedule e on their personal return since it was converted to personal use in the transfer process?

[Critter-3]

If the property is moved into a partnership which files a 1065 then it will no longer be reported on the personal return on the Sch E PAGE 1 ... instead the info from the K-1(s) produced by the 1065 will be reflected on the Sch E PAGE 2 on the personal return.