Rental Property Depreciation under an LLC

[MastaC]

Last year I procured a condo in another state as a real estate investment. I rented the condo out for a few months and had some income. The condo is placed in a typical asset protection structure; title is held in an LLC.

The condo has ongoing monthly expenses like HOA and a land lease.  I hired a property manager to look after the property hence have monthly Property management fees as well. I also made some improvements / upgrades.  However, instead of paying for the work individually or separately, I pay the property manager from the LLC. For example: if the flooring material costs $3,000 and the labor is $2,000. I just pay the property manager $5,000 from the LLC and he takes care of the project..ie:  separately purchasing the materials from the store and then paying for the contractor for labor. The rent is also collected by the property management company and sent to the LLC via 1099-MISC at the end of the year.  Do I deduct the expenses on the Rental property section of Turbo Tax? or as business expenses from the LLC?

This is not a commercial property, when I try to enter the details of the condo under the LLC as a Rental property, the depreciation is 39.5 years not 27.5 years. Is this due to the fact the LLC owns the condo? and is now categorized as a business asset?

[Carl]

Is this due to the fact the LLC owns the condo? and is now categorized as a business asset?

No. It's because you incorrectly classified the property as business property. It should be classified as Residental Rental Real Estate and reported on SCH E.

If this is a multi-member LLC then it's reported on SCH E as a part of the 1065 Partnership return.  If a single member LLC, then it's reported on SCH E as a physical part of your personal 1040 tax return. Under no circumstances and with no exceptions in your case, will you report one single penny of rental income or expenses on SCH C.

[MastaC]

That makes sense. Where do I input the information for the rental property? Owing it under the LLC seems to be throwing things of...

[Anonymous]

as Critter posted,  if it is a single member LLC, then ignore that fact. it's irrelevant for tax purposes.  the property manager should send you a year end report of revenue, expenses capital expenditures and any non tax receipts and payments such as security deposits.      the rental activity gets reported on schedule E.   

on the other hand if this is a multi-member LLC then you need to file a partnership return which will report the activity and split it among the members.    if this is the case, I strongly advise you use a professional to prepare the first year return.  

[Carl]

Where do I input the information for the rental property?

You still haven't clarified if it's a single member LLC or a multi-member LLC. If a single member, then you're reporting it in one of the personal versions of Turbotax, be it Deluxe, Premier, Home & Business, etc. You'll report it in the Rental & Royalty Income (SCH E) section of the program.

With Self-Employed (online) or Home & Business (Desktop) it's under the business tab. with all other versions it's under the Personal Income tab.

Understand that the IRS consider's an LLC to be a disregarded entity. Therefore the IRS does not recognize your LLC as a separately taxable entity. Additionally, your LLC will *NOT* protect your personal assets to the degree you may have been mislead to believe it will.

[MastaC]

Single Member LLC. Thanks!

[AAA Accounting]

I read your answer regarding RE property depreciation deductions. What happened with self-employment for single member in Schedule E (1040). K1 from 1065 does not pay self-employment right? 
Thank you!

[gloriah5200]

Rental income is “passive”. That’s because all you do with rental property on a recurring basis is just “sit there” and collect the rent every month. You are not “doing anything” to “earn” it on a recurring basis. That’s why rental income is reported on SCH E. Rental income is subject to regular tax, but is NOT subject to the additional self-employment tax. 

For additional information please refer to the following link:

Is Residential Rental Income Reported on Sch E subject to SE tax?

If a multi-member LLC files the default filing method of filing Form 1065 as a partnership, it would report it's income and expenses from the one residential rental property passive activity on Form 8825 in the Partnership return.  As long as the residential rental property is still considered a "passive" activity, the net gain/loss from the rental does not carry to the 1065 itself, but instead "passes through" to the K-1s for reporting to partners.  

Generally, as long as the partner(s) is not a real-estate professional and the partnership's business activities are not the rental, and the residential rental activity does still qualify as a passive activity for the partners in the partnership, then the residential rental activity net gain will not be subject to SE tax.

For additional information refer to the following link:

LLC residential rental subject to SE tax?