TurboTax Business - Where to record land acquisition

[Jypes]

I have a business that has bought land and is in the process of building a multi-housing for rental. Where do I record the land price that was purchased?

[DavidD66]

For clarification, what type of business structure is your business that bought the land?  Partnership, S-Corp, Sole Proprietor (including single member LLC)?

[Jypes]

David, Thanks for the quick response. It's a Multi-member LLC that the land has been purchased under. Thanks,

[Carl]

Rental property is reported on form 8825 of the multi-member LLC/Partnership 1065 return. It would seem to me that if your intention is to build and rent the property out, then you have nothing to report on any tax return until the tax year the property becomes "available for rent".  In that year, you'll enter the property in the 1065 return. Then, all owners of the property will be issued a K-1 showing their share of rental income/expenses. When the K-1 data is entered into each owner's personal 1040 tax return, that information will flow to page 2 of the SCH E included with the 1040 tax return.

[Jypes]

@Carl 

Does this mean, if, for example, we purchased the land last year, did soil testing, architect design, liability insurance, etc., and the construction is yet to start, we have nothing to report for this property for last year's taxes?

[Carl · Accepted solution]

When it comes to partnerships and multi-member LLCs, there are others in this forum that are more knowledgeable on these business structures. My input is based on what I know based on my experience as the owner of three rental properties and a separate single member LLC that has nothing to do with my rental properties.

we have nothing to report for this property for last year's taxes?

Correct. It all gets reported in the tax year the property is placed in service. In your case, it will be considered as placed in service in the tax year the property is "move in ready" and available for rent.

The only deductions you have for 2022 are property taxes and mortgage interest, and that's it. Each owner will claim their share of those on SCH A of their personal 1040 tax returns as an itemized deduction.

There share is defined as "what they actually pay". They can claim it, if they are legally obligated to pay it.

Overall, I would highly suggest you seek the services of a professional in your local area that is more familiar with your setup, as I'm not entirely confident that what I "know" based on my experience, is fully applicable to a multi-member LLC/partnership. While a CPA would be knowledgeable on the tax front, I would think a real estate professional that deals in business property (Of which rental property is "a type of" business property) would be able to contribute accurate and more reliable information. This would be especially needed if your state also taxes personal income.

I'm sure you can find those that deal with multi-family units in your area, as you should be able to find the owners/managers of newly constructed multi-family rental units in your area that were built within say, the last 5 years. If anything, they can get you pointed to the right people.

Typically, for a one-owner situation where you purchase property with the intent of renting it out, that property remains as personal use property and if there's a structure on it, it's treated as a 2nd home until such time it's placed "in service".

[Jypes]

Thanks @Carl - This is very helpful.