If you live in a community property state you can file 2 SCH Es for the rental. If not you need to file a 1065 for the LLC and will get K-1s. You need a tax pro if you're going to go the LLC route and file that way.
Can We continue the way we’ve been filing using schedule e or do we have to go the LLC route?
Since you have transferred your property to an LLC, you would have to dissolve the LLC to continue as you were.
You are no longer filing as individuals and married couples in a business have two choices. You are now considered a Qualified Joint Venture. As mentioned before, the only way you can continue as a married couple with an LLC is if you live in a community property state. If that is not your situation, you will have to file a Partnership return.
So as far as tax liability, will it increase for us? We don’t take any income from the rental. I’m beginning to regret this.
On the partnership return, the rental will be reported on Form 8825 and the net profit/loss will carry to a Schedule K-1 for each of you to include on your individual return.
It is very possible that the bottom line will not change.
When you showed the rental income on Sch E, you had to show the net profit of the rental on your individual return and it will be the same way now but it will carry into the 1040 through page 2 of the Sch E.
Passive activity limits could apply in a loss situation.
Thanks. I need to have someone do the taxes this year, at least. I’ve always done them myself but this is throwing me for a loop.
If you were going to prepare Form 1065 yourself, you would need TurboTax Business to prepare Form 1065 for the LLC and to issue the two K-1s. Then you would report the 2 K-1s on your personal return (using Premier or higher). The income is going to go on Schedule E either way, but you just need to decide if you want to prepare the business return or pay someone else to do it.