topic LLC - Rental Income vs. Ordinary Income in Investors & landlords

LLC - Rental Income vs. Ordinary Income

kkletcher — Mon, 09 Mar 2026 08:17:51 GMT

Hi.

My husband and I own a property with his parents (mortgage and title under all four of our names). We rent this property out in FL. To keep things clear we created an LLC for banking issues. All of our airbnb payments and expenses flow through the LLC. (We have yet to take any income from the rental).

My question is:

1) Rental Income - Since the home is in our name and not the LLC - do we complete the form 8825?

2) Where to place the income: Do we consider the rental income/payouts from Airbnb as LLC "gross receipts/sales" - ordinary income? Or do we place this as Schedule E - Part I - personal rental income?

Part 2: If we put the rental income under Schedule E - personal, than do we put no income for the LLC on Form 1065 (remember, the Airbnb payouts go to the LLC directly).

THANKS!

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 00:08:44 GMT

LLC is used for property management issues - this just keeps everything separate and clear.

Re: LLC - Rental Income vs. Ordinary Income

Mike9241 — Sat, 12 Mar 2022 01:09:28 GMT

since the property is held by the 4 of you directly, the LLC is irrelevant (why do you even have it a joint a/c would probably accomplish the same thing)? a partnership return is required. the question is do you provide services to the AIRBNB users

According to the IRS: “Generally, Schedule C is used when you provide substantial services [i.e. hotel like services] in conjunction with the property

Do short-term rentals go on Schedule C?
Renting for Less than Seven Days When your average rental period is seven days or less per tenant, the IRS deems the activity to not be a rental activity under the passive activity rules. Because of this, many CPAs put short-term rental activities on Schedule C.

Is an Airbnb rental considered a business?

Typically since Airbnb requires active management, it is considered an active trade or business. This classification renders hosts as self-employed businesses. As a self-employed individual you are responsible for reporting and remitting your taxes on your own

thus these activities of an AIRBNB would get reported on page 1 of form 1065 not form 8825

any net income would be subject to self-employment tax

the partnership will issue each of you a k-1 which you use to report on your personal tax returns,

since you control the LLC, distributions from the partnership would be treated as if they had been made to each of you directly. (like the LLC was a management company)

Re: LLC - Rental Income vs. Ordinary Income

Carl — Sat, 12 Mar 2022 02:31:09 GMT

SCH C does not apply here, since this is a multi-member LLC or Partnership. Basically, a 1065 Multi-member LLC/Partnership return is completed and filed.

If the rental income is passive, it's reported on IRS Form 8825 by the multi-member LLC/Partnership. Then the MMLLC/Partnership will issue each member/partner a K-1 with the income/expense/gain/loss information on it. Each partner will enter the information from that K-1 into their personal 1040 tax return.

Take note that the filing deadline for the 1065 multi-member LLC/Partnership tax return is March 15. The late filing penalties are $205 per member for each month late. So file on or after March 16th and with four members you're looking at a late filing penalty of $820.

If the rental income qualifies as non-passive, the form 8825 will not be used for that specific non-passive activity.

Generally speaking, rental income is passive. However, with an AirB&B or VRBO property, if you provide services that are "directly beneficial to the tenant", then it could qualify as a non-passive activity.

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 12:30:13 GMT

Hello- and thank you!

1) Form 8825- I was under the impression this form was only to be completed if the rental property is owned through the partnership? As this is considered passive income, if you placed this on the form 8825 and it counted as rental income on form 1065 then would the gross receipts/sales on form 1065 line 1 be “0” since the LLC only made rental income and no other income.

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 12:30:46 GMT

@Carl

Re: LLC - Rental Income vs. Ordinary Income

ColeenD3 — Sat, 12 Mar 2022 13:49:58 GMT

It is not just an issue of income but of services provided. It is not a straight rental. As @Mike9241 said:

When your average rental period is seven days or less per tenant, the IRS deems the activity to not be a rental activity under the passive activity rules. Because of this, many CPAs put short-term rental activities on Schedule C.

Is an Airbnb rental considered a business?

Typically since Airbnb requires active management, it is considered an active trade or business. This classification renders hosts as self-employed businesses.

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 13:57:02 GMT

@ColeenD3

Thank you for that information.

This rental is average of 7 days or less - so if I'm understanding correctly, this wouldn't qualify as passive income. Therefore, no 8825 form would be needed. Here lies my question - if we don't include this on the 8825 form - do we include this "rental income" as ordinary business income for the LLC ?

I'm just trying to see:

1) Form 8825 - is this required to be filled out

2) If Form 8825 isn't required, then do we could this rental on our personal 1040 Schedule E (Part I) - or does the LLC count it as income on 1065

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 14:01:23 GMT

@ColeenD3

Also - can you file a schedule C if you're not a single member LLC?

Re: LLC - Rental Income vs. Ordinary Income

Carl — Sat, 12 Mar 2022 14:05:22 GMT

can you file a schedule C if you're not a single member LLC?

Typically, no. There is one exception.

If you live in a community property state and you have a 2 member LLC where both members are married to each other and filing a joint return, then each member can report their 50% on separate SCH C's as a part of their joint 1040 tax return.

For your case, since there are more than 2 members in the LLC, it doesn't matter if you live in a community property state or not. You can't do the SCH C on your separate 1040's.

Re: LLC - Rental Income vs. Ordinary Income

Carl — Sat, 12 Mar 2022 14:10:15 GMT

Also understand that one of the requirements to qualify as a trade or business, is that you must provide services that are directly beneficial to the tenant. For example, if you're only providing services between tenants to prep the property for the next occupant, that's not providing services directly beneficial to the tenant.

Whereas if you're providing daily cleaning services while the property is occupied, then you are providing services to the tenant. Things like making the beds daily, cleaning the kitchen, preparing or providing a meal, etc.

But weather the activity qualifies as a "trade or business" or not, you still need to complete and file a 1065 return and issue all members a K-1. I think I mentioned above that the 1065 is due March 15th too.

Re: LLC - Rental Income vs. Ordinary Income

kkletcher — Sat, 12 Mar 2022 14:21:24 GMT

@Carl

Yes, thank you for the reminder. That's why I'm working on this, as I am working to submit all paperwork on Monday the 14th.

I believe the hardest thing here is just to determine if the rental income goes onto the LLC form 1065 or if we complete via personal Schedule E (it keeps mentioning schedule C - but not sure that is the correct form or not). Just difficult to determine the placement of the rental income.

Re: LLC - Rental Income vs. Ordinary Income

Carl — Sat, 12 Mar 2022 14:39:17 GMT

I believe the hardest thing here is just to determine if the rental income goes onto the LLC form 1065 or if we complete via personal Schedule E

I think you're over-thinking this, because of the lack of clarity in this thread. (I don't claim innocence on that either.)

It goes on the 1065 regardless. If it's passive, then the 8825 will be completed. Otherwise, there will not be an 8825 completed.

Understand that when the K-1 is issued, if the income is passive then all the data from the K_1 will end up on page 2 of each owner's individual SCH E. If the income is not passive, then it will end up elsewhere on the owner's 1040.

In other words, you the individual 1040 tax filer will not enter anything "directly" into the personal 1040 program concerning the property, that is not on the K-1. But you issue/get a K-1 no matter what.

For taxes, the only "real" difference between a partnership and a multi-member LLC, is the spelling. The partnership issues each owner/partner a K-1, regardless of the type of income received by the partnership.

Bottom line is, A 1065 needs to be completed and K-1's issued. End of story.

Re: LLC - Rental Income vs. Ordinary Income

Anonymous_ — Sat, 12 Mar 2022 14:53:16 GMT

@Carl wrote:
It goes on the 1065 regardless. If it's passive, then the 8825 will be completed. Otherwise, there will not be an 8825 completed.

Nonpassive income (loss) can also be reported on Form 8825 in certain instances, such as a self-rental or vacation rental with sufficient personal use.

@AmeliesUncle

Re: LLC - Rental Income vs. Ordinary Income

AmeliesUncle — Sat, 12 Mar 2022 18:25:49 GMT

First thing you need to determine is if "services" are provided. Maid service and meals are the most common, but there could be other factors that determine if "services" are provided. For the rest of my comments, I will assume that "services" are NOT being provided.

It needs to be on a Partnership return (Form 1065): The two options are Form 8825 (which is part of the 1065), or on page 1 of the 1065. It is not an option to enter the rental on page 1 of Schedule E of your personal tax return.

Although I personally think Form 8825 makes most sense, the Instructions for 8825 may make that approach questionable.
If you report it on the 8825, I suspect when you enter the K-1 on your personal tax return that it will be difficult to tell the program it is NOT passive income.
If you report it on page 1 of the 1065, it may be tricky to tell the program it is NOT subject to SE tax (it should not populate Box 14 of the K-1.

In either case, when you enter the K-1 on your personal tax return, the amounts will flow to page 2 of Schedule E on your personal tax return.

Re: LLC - Rental Income vs. Ordinary Income

Anonymous_ — Sat, 12 Mar 2022 20:15:36 GMT

@AmeliesUncle wrote:
If you report it on the 8825, I suspect when you enter the K-1 on your personal tax return that it will be difficult to tell the program it is NOT passive income.

I agree. This would essentially require entering false information, such as indicating the property is a self-rental.

@AmeliesUncle wrote:
If you report it on page 1 of the 1065, it may be tricky to tell the program it is NOT subject to SE tax (it should not populate Box 14 of the K-1.

I agree and this scenario is even worse since, I believe, it would require overrides in Forms Mode if Box 14 is populated.

Re: LLC - Rental Income vs. Ordinary Income

AmeliesUncle — Sat, 12 Mar 2022 20:53:02 GMT

@Anonymous_ wrote:

I agree. This would essentially require entering false information, such as indicating the property is a self-rental.

If there are not any rentals on page 1 of Schedule E, I would go the Real Estate Professional route because that does not show up on the tax return (it just makes it non-passive).

Re: LLC - Rental Income vs. Ordinary Income

tccpg288 — Sun, 05 Jun 2022 20:44:00 GMT

I have a similar scenario.

The host does provide the services and has a 1065.

I am assuming this could qualify for active activity.

Would the activity be reported on the 8865 for each building then? Or on Page 1 of the return? Does all activity go in the 1065, or is some reported on Sch. C?

Re: LLC - Rental Income vs. Ordinary Income

Mike9241 — Sun, 05 Jun 2022 23:37:26 GMT

this is for schedule C but would apply to a partner who provides substantial services.

If you provide substantial services for the convenience of your guests,
your short-term rentals can be re-classified as a Schedule C business
activity subject to self-employment tax. For example, the operation of
the rental in similar fashion of a bed and breakfast will typically be
considered to be the provision of substantial services.

thus for preparing a partnership return the activities would not be entered on form 8825 buy on page 1 of the 1065. then this would flow to the k-1 as business income and also box 14 of k-1since it would be subject to self-employment taxes.

what if some partners are not active. then an allocation would need to be made between page 1 and form 8825.

this is an opinion. I'm not citing anything authoritative.