Opened an LLC mid-year, how should the taxes be filed

[rrc0406]

I have a rental property that is under my name. I opened an LLC which will be taxed as a sole proprietor for tax purposes. Do I need to show the rental property under my individual taxes (1040) for first part of the year and as a LLC (1120S) for the second half of the year? Or can I file all the income and expenses for the full year under the LLC?

[Mike9241]

if title is in your name the corp/llc doesn't own it.  report the rental on Schedule E.  if the title is in the name of an S-Corp, which is the worse way to own rental property,  then all income and expenses before the title was put in the Corp's name goes on your schedule E, after that the rental is reported on the Corp's return. The TT for individuals will not prepare an S Corp return. you need TT for business which can only be installed on a full windows 10 computer.   is there a mortgage? transfeerrinf title from yourself to an LLC can cause issues with the lender.  who is the borrower on the mortgage documents. perhaps you should consult a pro, to avoid misfilings on your personal and corporate returns. 

[rrc0406]

Not sure why owning a rental property under an LLC is a bad idea. The title has been transferred to the LLC and there are bank accounts under the LLC for rent and expenses.

Can I not file the full year under the LLC?

[Mike9241]

an LLC in itself is not the issue. owning rental real estate in an LLC taxed as an s-corp is.  many lessors operate at a loss usually due to depreciation.  to deduct the loss a member must have basis. a sole proprietor does not face this problem.  in an  LLC taxed as a partnership members get to use the qualified nonrecourse financing (QNRF) to increase their basis. example: a member's capital a/c $2,000 member's share of QNRF $98,000, basis $100,000 so that member could deduct losses up to $100,000.  If the LLC has elected S-Corp taxation, the tax laws for S-Corps apply. same situation except LLC taxed as S-corp. there are no loans from shareholder/LLC member.  since S-Corp tax laws apply the mortgage does not add to shareholder/member's basis. member basis is now only $2,000 so that's the limit of losses that can be deducted, 

the usual reason to elect S-Corp vs LLC taxation is that in a business that is not rental real estate the full profit is subject to SE tax while in an S-corp only the wages are subject to Fica and Medicare taxes. rental activities where no personal services areb't involved. like AIRB&B,  are not subject to SE taxes.    remember that it is only for tax purposes that an LLC can be treated as an S-Corp. legally you still have an LLC. 

[ToddL99]

Based on the information you provided, you should report the rental income income and expenses on Schedule E of your personal tax return.

Where do I enter income and expenses from a rental property?

Since the rental property is held in your name, its rental income and expenses are properly reported on your personal return.

Having an LLC to "operate" the property (or even to hold title) would not change how its income is reported. If, as you stated, the LLC is taxed as a sole-proprietorship, then it is a single-member LLC (disregard entity). As a disregarded entity, its income and expenses would get reported on your (the single-member's) personal tax return. 

@rrc4046

[rrc0406]

Mike and Todd, thank you for taking the time to answer my question. I was about to file a form to set the entity as a sole proprietor. Looks like that is not a good idea.

Based on the responses, seems like although I transferred the title on rental properties to LLC, the income and expenses still need to be filed under personal taxes.

Is there an advantage of an LCC other than liability protection?

[neildeal]

I have a similar question.  I just put the property into an LLC in November.  It is single member LLC.  I owned the property before as well.  I was putting it on my schedule E, I just created the LLC for added protection.  Do I have to split the finances between before and after LLC?  Or do I just continue to report the finances under my personal return?  Second related question, as far as bookkeeping, I just got quickbooks desktop pro plus 2024.  should I use this program to manage all P&L expenses for the LLC regardless of how I report it for tax purposes.  My answer so far to these questions is use the software for bookeeping, but continue to report on personal tax return.  Is this the case even if I hire people to help me manage the property and pay them payroll?  (3rd question I guess).  

[Mike9241]

as a single member LLC that has not elected corporate tax status (an extremely bad idea for real estate) the LLC for tax purposes is disregarded. So both the personal portion and the LLC portion would be reported on one schedule E. if you want to buy software to track income and expenses go ahead. this is a personal decision.  Generally, if you hire a management company, it would be the ones collecting the rent and paying the expenses and contracting for services such as repairs and maintenance. What purpose would be served by using such a MC if you still had to arrange for various work yourself. periodically they would send you a report of what those are so you can file your taxes.  using a management company that is not a corporation, would require you to issue them a 1099-MISC for the fees you pay them.