Schedule C Expenses

[bart100]

As I enter expenses for my rental property, data for Schedule C, Part II; the amount I owe fluctuates as I enter more expenses. For example, if my expenses were $2,000; I may owe $300. When I add more expenses, totaling $5,000; I may owe $400 (not expecting this; shouldn't this be lower). If I add more expenses, the amount owed may decrease (as expected).

Shouldn't the taxes owed decrease as I add more expenses?

[JillS56]

Yes, normally the more expenses total the lower the tax obligation.   Your question brings another question to my mind.   Why are you report rental property expenses on a Schedule C?   Are you a real estate professional?  Typically, rental property is reported on a Schedule E.  

Until your return is completed the amount of taxes owed could fluctuate.  

[bart100]

JillS56,

I have a rental property in an LLC, hence Schedule C. The tax liability I see, is the final number on the forms.

[JillS56]

Okay, that makes sense.  Do you remember what you added when the tax liability went up?   Did you add any type of income anywhere else in the return?  Like interest, dividends, stock sales.  Anything.    It is really hard to explain why your tax liability went up without understanding more about your return.

[bart100]

JillS56,

This is very strange. As I was entering the LLC expenses, I noticed the fluctuation on the federal amount owed. Hence, I tried different numbers for only one entry. No other entries were made; i.e. income, dividend, etc.

For Repairs and Maintenance:

Entry         Amount Owed for Federal

$10,211   $362

$5,000     $174

$7,000     $220

$10,000   $352

$1,000     $878

Use $1,000 in repairs, $878 owed - use as a starting point

For $5,000 in repairs, $174 owed, sounds right, because more expenses, lower tax

But for $7,000 in repairs, why would I owe $220? This does not sound right.

Looks like a bug in the software.

[LeonardS]

If you are an LLC the IRS considers your LLC to be a disregarded entity.  In that case, you will report your rental property on Schedule E not Schedule C. 

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

Your concerns very well will be resolved by reporting your rental activity on Schedule E.

Follow these steps to enter your rental in Schedule E.

1. Sign in to your TurboTax account; 
2. Select the Wages & Income tab
3. Scroll down to the Rentals, Royalties, and Farm Select Show more
4. Select Start on the line for Rental properties and Royalties (Sch E)
5. On the page Did you have any income from rentals or royalties? Check Yes.
6. Select the Box for Rental property on the page What are you here to report?
7. Follow the screen prompts to enter your rental information

[bart100]

LeonardS,

Thanks for the advice on switching to Schedule E. In the past, I filled out Schedule C and have Carryover losses. In the Schedule E, the system is asking me for the values from Schedule E in last year's filing. Can I substitute, Schedule E for Schedule C and enter all values, as if I had filled out Schedule E last year?

[PatriciaV]

Yes. Use the information from prior year Schedule C to complete this year's Schedule E. 

If you imported your prior year return, you may need to "dissolve" your Schedule C business this year. This is especially important if you had assets for depreciation.

[bart100]

PatriciaV,

How do I "dissolve" my Schedule C business and start (transfer to) Schedule E? Yes, I had assets for depreciation. This is a single member LLC, a real estate rental property.

In Schedule C, Disposing of a Business has Sale, Exchange, Retirement, Abandonment, Destruction, and Death.

[PatriciaV]

To dissolve your Schedule C business, firsts go to the Business Profile and indicate that you sold the business in the current year on the page "Tell us about your business." When you check that box, another question will pop up asking how you disposed of it. Answer "No," meaning you didn't sell it.

For each asset reported for this business under Assets for Depreciation, you will need to indicate that you converted it to personal use. You may use January 1 as the date of this conversion, since it should have been rental property last year. By converting the assets to personal use, there is no gain or loss on the conversion. This allows you to add the asset to Schedule E. Be sure to include any depreciation that you reported in prior years when you set up the assets again.

[Carl]

I have a rental property in an LLC, hence Schedule C. The tax liability I see, is the final number on the forms.

Okay, that makes sense.

No it doesn't. Typically, that would not matter. For a long term residential rental property, that gets reported on SCH E. Doesn't matter if the property is in an LLC.

There are other circumstances where the income would be reported on SCH C. But just because ownership of the proeprty was transferred to an LLC isn't one of them.