LLC owned rental must file state tax return?

[ccphill3]

An LLC owns a rental property in state A. There are three members of the LLC.

One member lives in state B. State B does not have state income tax.

Two members live in state A. The same state as the rental property. State A does have state income tax.

The property has a small loss for 2020 and expects to usually have a small loss.

Does the LLC need to file a state return for state A? The state where the property is located even though it has a small loss? 

[Corrlich44]

HI ccphill3,

Thank you for posting your question in our forum today!

That is a great question!

Your first true question should be whether or not the LLC has decided to file the LLC tax return as a PARTNERSHIP or be treated as an S-CORPORATION, which is not subject to Self-Employment Tax ("FICA Twice") , but would be required to have payroll to support the purpose and benefits from that non-taxation.

To answer the question in the most basic sense is, if the LLC is acting as a registered partnership, in a state that has state income tax, a state partnership return is required for the business and a State generated Schedule K-1 is provided to each member regardless of their state of origin.

This will require each member to file a State A Resident or State B Non-Resident tax return in State A, regardless of whether they benefit from claiming a loss or not in their home state, if that state does not have a state income tax.

Any passive losses the that Schedule K-1 may reflect for each member will most likely be applied in future years on their State A Resident or State A Non-Resident tax return.

This is normally the requirement in all states that have a state income tax.

I hope this is helpful to you ccphill3!

Regards,

Alan S.

[Mike9241]

have you filed either form 1065 or form 1120-S?  every domestic partnership or LLC not electing S-Corporation taxation must file Form 1065, unless it neither receives income nor incurs any expenditures. A corporation or other entity must file Form 1120-S if (a) it elected to be an S corporation by filing Form 2553, (b) the IRS accepted the election, and (c) the election remains in effect.

can't tell you what the state filing requirement is without knowing the state because each is different and may well depend on whether you are for federal tax purposes supposed to file a 1065 or an 1120-S.  by the way, an S-Corp is not well suited for a real estate venture. in LLC/partnership the mortgage gives the partners/members basis to take losses. this is not true with an S-Corporation. owners in S corp's bais is limited to amount they put in and money they directly lend to the S-Corp.