LLC's and self rental

[WhiteOleander]

I have a client who has two single member LLC's. One LLC is for a retail business. The other LLC owns the bldg that the retail business runs from. The retail LLC pays rent to the bldg LLC.

Client files a Sch C for the retail LLC and a Sch E for the rental LLC. Now it seems that this is considered self rental. Does anyone know if this is correct?

I have checked the SB Taxbook. I didn't find anything there?

Thanks.

[veritas]

Sounds like

your client should elect S Status for the retail business.

Otherwise your client has a big problem.

[S T]

Wouldn't

I think no matter the choice of entity it is still considered self rental, so no loss! Check out prior posts with the search method for self rental on the Board. there have been discusssions. I have the rules somewhere and will have to locate as I have a client in this position.

Sandy

[Kram BergGold]

Here is what I would do

You have two disregarded entitites. So you can't report rent on Schedule E as a person can't pay rent to himself. I would show a rent amount on Schedule E and an equal deduction for amount due to disregarded entitiy. Then I would show all deductions for the building on Schedule C like interest, taxes, insurance and depreciation and repairs. Just the way you would do it it there were no LLC's. Which for tax purposes is what you have.

[WhiteOleander]

You have two disregarded entitites. So you can't report rent on Schedule E as a person can't pay rent to himself. I would show a rent amount on Schedule E and an equal deduction for amount due to disregarded entitiy. Then I would show all deductions for the building on Schedule C like interest, taxes, insurance and depreciation and repairs. Just the way you would do it it there were no LLC's. Which for tax purposes is what you have.

That's an idea I hadn't thought of. Thanks.

[Davc]

You have two disregarded entitites. So you can't report rent on Schedule E as a person can't pay rent to himself. I would show a rent amount on Schedule E and an equal deduction for amount due to disregarded entitiy. Then I would show all deductions for the building on Schedule C like interest, taxes, insurance and depreciation and repairs. Just the way you would do it it there were no LLC's. Which for tax purposes is what you have.

That makes no sense at all. Everything should go on schedule with C no deduction for rent and no Schedule E at all. Which is the first two sentences of the above post. Then the contradictions begin.

[Kram BergGold]

Addendum

Dave, my post assumes the taxpayer has been writing rent checks from the C to the E. So I was just creating a paper trail to match the money flow. If the taxpayer had not been writing checks then I would just show all real estate deductions on Schedule C and not bother washing anything on E. My response was based on what one of my clients has been doing.

[Davc]

Dave, my post assumes the taxpayer has been writing rent checks from the C to the E. So I was just creating a paper trail to match the money flow. If the taxpayer had not been writing checks then I would just show all real estate deductions on Schedule C and not bother washing anything on E. My response was based on what one of my clients has been doing.

You seem to be assuming that would make it a wash. Which is not true. You are moving income off of Schedule SE>

[Gretel]

What is the heat?

I cannot see anything wrong with KramBerg's approach. Maybe I am blind, but what exactly is removed from SE?

[Davc]

What is the heat?

I cannot see anything wrong with KramBerg's approach. Maybe I am blind, but what exactly is removed from SE?

Net income in the amount of gross "rents". Self rental is not allowed.

[Gretel]

Net income in the amount of gross "rents". Self rental is not allowed.

I guess you assume that KramBerg wants to put a deduction for rent on Sch. C whereas I assume this was not his intention. But only he knows what he meant. However, I agree that Sch.E should not be filed.