rental property moved to single member llc

[johnmvt]

I have moved some rental properties from my name into a single member LLC.  I need help understanding how to report this through TT home & business 2021.  I understand the concept of the disregarded entity.  I believe this needs to be split between schedule E (portion when under my own name) and schedule C (portion when owned by the LLC).  The properties were refinanced with a business loan in the LLC name.  Prior existing mortgages are gone.  Thanks in advance for the help.

[AliciaP1 · Accepted solution]

As a single-member LLC, which is a disregarded entity as you say, you should report the income and expense based on the IRS suggestion:

Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer.

The IRS defines "providing substantial services" as services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service.

If you are renting the properties out and only provide basic services such as heat and light or trash collection, you would report your income and expenses on Schedule E, Part I.

If your LLC is not in the business of a real estate dealer, then you would need to report on a Schedule E only.

For more information please see page 12 of Publication 527 regarding Reporting Rental Income, Expenses and Losses.

[Carl]

Generally, since a single member LLC is considered a disregarded entity by the IRS, if the only thing owned by the LLC is long term residential rental real estate, then absolutely nothing what-so-ever concerning the rental property is reported on SCH C. It's all reported on SCH E. So you have no need to complete the SCH C at all, and absolutely nothing changes in the way the rental income/expenses is reported.

For the most part, long term residential rental income is considered passive income. That means you do not go out and physically "do something" on a recurring basis to actually earn it. Therefore it gets reported on SCH E. This type of income is not subject to the additional 15.3% self-employment tax and can not be included when figuring your contributions to an IRA or other tax deferred retirement account. Passive income also can not be used when figuring some of the tax credits you may qualify for, such as the EIC. It's also not counted when figuring the amount of social security you may qualify for when you reach retirement age.

Earned income, sometimes referred to as non-passive income is reported on SCH C. This income is subject to the additional 15.3% self-employment tax, and can be included when figuring retirement contributions and tax credits you may qualify for.

In order for long term residential rental income to qualify as non-passive income and be reported on SCH C, you would have to provide your tenants services that were benificial to the tenant, and such services would need to be provided on a recurring basis. Examples would include daily or weekly house cleaning services, meal preparation services, laundry services, etc.  Things such as yard care would not count as such a service, since that's something you would do even if the property sat empty for several months, as that would be considered routine maintenance.

So if your rental business does not qualify as a non-passive income producing business, the fact you changed the ownership of the property to an LLC will change nothing. You'll continue to report your rental income/expenses on SCH E just as you have in the past.