rental loss

[bihl-miran]

Is there a limit on rental loss that can be reported on form 1065 for an LLC? Thank you

[guywong · Accepted solution]

LLC's don't pay any income taxes.  So there is no limit on the Form 1065 for rental losses.  However, rental losses can be limited on the LLC shareholder's individual tax return, Form 1040 based on the taxpayer's adjusted gross income, amount of available passive activity gains, real estate professional statuses, etc.

If the LLC is a SmLLC, i.e., owned by a single member, a Form 1065 is not required. The rental income and expenses are reported directly on the owner's Schedule E of Form 1040, subject to all the limitations.

An LLC can elect to be taxed as a corporation.  In that case, the LLC would file a Form 1120.

[Mike9241]

@guywong 

not quite correct. while the IRS does not impose income taxes on partnerships, some states do but not where there's losses

it generally makes no sense to have rental real estate taxed at the corporate level (c-corp filing form 1120). the losses go nowhere until the property is sold then the use of the losses is subject to whatever operating loss rules are in effect that year.  The cforp might owe income taxes and if liquidated there could also be taxes at the individual level. 

as to putting rental real estate in S-corp, that generally makes no sense either. even if yuo are not subject to the PAL limits, you have another obstacle to deducting losses and that's the at-risk provisions because in an S-Corp mortgages don't count towards shareholder basis only direct loans from the shareholder to the corp.

as you can see the tax laws are very complex, so if you are considering incorporating consult with a tax pro.