Got stuck at 1065 form filing using Turbotax Business. Please help!

If the ownership of the LLCs is not identical to the ownership of the partnership, you should seek the advice of a local tax professional who can address your specific, complicated situation.

But if the owner(s) of the disregarded LLCs are also the partner(s) of the holding company, the IRS "looks-through" the disregarded entities and assigns the activity from the investments to the "holding" partnership. It's as if the single-member LLCs don't exist for tax purposes.

In TurboTax Business, indicate under Business Info >> About Your Business >> Type of business that you rent real estate to others. Then under Federal Taxes >> Rental Real Estate enter each LLC's activity as a separate rental property. These entries will consolidate the "subsidiary" activity under the "holding" partnership to be reported to the partners on Schedule K-1.

Be sure to file all necessary State Income tax returns as well.

Thank you for the reply. But we are unable to find a local tax professional who is capable of addressing our specific needs and that's why we had to come here for help. The owner of disregarded LLCs ("subsidiaries") is the partnership ("holding company"), and the holding partnership is owned by some people as partners. So how do subsidiary LLCs report their income to the holding partnership on form 1065? Schedule K-1 of 1065 seems to be only for passing through the partnership interest to its partners. Thank you again for anyone who can help.

In this case, you can follow my instructions to report the subsidiary LLCs as rental activity for Form 1065. The net income/loss will flow through to the partners as follows: LLC >> Partnership >> partners (K-1s).

To be clear, the individual LLCs will not file separate tax returns. Only the partnership will file Form 1065, which will include K-1s to send to the partners. They in turn will include the K-1 activity on their personal tax returns.

You do have the option to use TurboTax Live Full Service Business, which allows you to work one-on-one with a business tax professional who will prepare your return.

Thank you. For federal 1065 we are kind of clear. But not sure how to proceed with state. When we enter state tax in TTB, it automatically populated our holding LLC as the entity to file for those states, which is incorrect. We need to file as disregarded entity for each state and the software automatically point us to sch C in personal 1040 when we specify it as "disregarded, single member LLC", which is not going to help either. Do you have the right state business tax functions included?

Please clarify in which state you are filing business returns.

AL, GA, MD and potentially VA (not figured out it's required yet for single member LLC)

While you would NOT file a State tax return for a single-member LLC in those states, you are required to a file State income tax return for the holding company LLC to report the income from each state.

According to the Alabama Dept of Revenue, a single member LLC should not file a separate Form 65.

Per the Georgia Instructions for Form 700, under Filing Requirements, an LLC is required to file a Georgia return only if also filing Federal Form 1065.

The Maryland Admin Release No. 25 states that if an LLC has elected to be classified as a disregarded entity for federal income tax purposes, [it] will not have to file a separate Maryland income tax return.

According to the Virginia Dept of Taxation, only pass-through entities are required to file a tax return; single-member LLCs are specifically excluded from the list of pass-through entities.

Thanks. For Alabama, they do require business privilege tax, which we already paid an initial fee last year for the entity. They do need form PPT filed but we can extend it. 

Thanks for MD and VA. But for AL and GA, we can only do it on paper because you don't have those (AL form PPT and GA 700)?

Alabama Form PPT (print and file) and Georgia Form 700 (e-file or print) are both available for TurboTax Business.

You can look up business state forms here: State Forms Availability for TurboTax Business

Could you explain why GA 700 is needed? It is for partnership but my GA entity is disregarded and single member LLC.

It is required because the holding company files as a partnership.

Per GA website:

You are required to file a Georgia Income Tax Return Form 700 if your business is required to file a Federal Income Tax Form 1065 and your business:

• Owns property or does business in Georgia
• Has income from Georgia sources; or
• Has members domiciled in Georgia

The Form 700 is an information return and as such the income tax is paid by the partners and not the partnership.

This also applies to an LLC that is treated as a partnership for federal income tax purposes.

@sallyaynge

Thanks. But for GA form 700, should I file as my holding company just as in federal? Or file as Georgia SMLLC entity? If it's GA entity, I have to start a new return

Your partnership files Form 1065 and has income sourced in Georgia. Therefore, the partnership is required to file a Georgia State income tax return.

As stated previously, you will need to file a State Income tax return for the partnership in any state where you had income that flowed through the SMLLC to the partnership.

Thanks. We understand those. Problem is: in form 700, should we fill in our holding company's info (name, FEIN) or the Georgia entity's info at top of the form? I called the state and they had conflicting information.

Your partnership is filing the Georgia state return, so use that name and entity number. TurboTax should correctly complete this for you on GA 700.

If there is any question at the state level (unlikely), you will receive an inquiry letter that you can respond to with additional information.

Thank you. We are done with Federal 1065 and K-1s. Now for individual 1040, how to "dispose" the previous information on rentals? I got the following screenshot. It seems we can check "convert from personal to rental in 2022"? I assume the software will import K-1 information and not duplicate it on sch E of 1040, right?

I am not sure if we should delete the entries completely and it may cause problems for turbotax home&business.

You don't have to go on this screen at all. Here's what you do. Enter the rental activity through the partnership's K-1 in here

On top, Personal Income/ Sch K-1/Partnerships.   Enter all your partnership information till you get to this screen

then enter your rental activity here

This will flow through to Sch E , pg 2. and recorded as income there. Depending if you qualify as a real estate professional or not your activity in the llc will make you income to subject to the passive or nonpassive rules. See here Sch E, pg. 2

Also check out form 8582, pg. 1 and 2.

For more information on passive activity rules re; rental activity . See HERE  under the Section Rental Activities

Appreciate it. I did what you said (imported K-1 under personal income). Two questions:

1. Turbotax still carried over from previous year (2021) rental properties information such as depreciation and automatically populated another sch E under "Business income and expenses" of "business". Now I have two versions of Schedule Es that obviously overlap with each other. In "Forms" format, I can see copy 1/ copy 2 of Schedule Es that shows both K-1's inputs as well as individual rental property info. How do I get rid of 2021's carried over Schedule E? Can I simply click delete in the list of rental properties under old "schedule E" (screen shot below)?

2. In one of the answers here to similar situation as mine: 

https://www.justanswer.com/tax/00v3x-transferring-rental-property-partnership.html

It mentioned "There is an area on page 4 of the 1065 (Schedule M-2, line 2B for property contributed) where the capital contributions are reflected.". 

That "capital contribution" in my K-1 is 0 because I didn't know these properties should be considered as contribution. Should I correct this? I somehow get the balance sheet balanced without having this number filled (which theoretically should be the total rental property asset minus liabilities at the start date of holding LLC?) 

Appreciate your help!

Yes, you need to fix that.  

Assuming you set the holding company up in 2022, you need to "dispose" of the properties on your personal return as of the date the holding company took over.  You will dispose of the property at your basis (or value - so no gain or loss) and contribute it to the holding company at the same basis.  This should give you 2 pages of Schedule E (since rentals are reported on a different page than K-1 income) and not 2 actual Schedule Es.

If you set the holding company up prior to 2022, you will need to go back and amend 2021 returns to reflect the holding company setup and ownership of the properties correctly.  Also, if this is the case, you may want to seek help from a tax professional in your area to assure yourself you get it all set right.

@sallysynge 

Thank you. I did it in 2022 so it should be the first year. Do I check the one below (convert from rental to personal) to dispose it?

Yes, that's correct.

Many thanks for the quick response! For 1065 sch M-2 line 2b "property contributed", should it be equal to schedule L's line 21 d (end of year capital account)? 2022 was the first year for this LLC.  

It would be the beginning capital plus any income added less distributions. See here

Good luck.

9/3/24

I have similar LLCs structure for my rental business, ie. WY holding partnership LLC with disregarded single member Maryland LLC and Arkansas LLC.  Do I need to file WY state return or Arkansas return besides the Form 1065, SchK1 for WY LLC?  Many thanks!