Rentals subject to SE tax?

[Hamacher]

I have a client that sells and repairs boats. They also rent boats. Is it proper to have the boat rentals seperatly reported - not subject to SE tax on line 3a and 3b of the Form 1065?

Thanks in advance for your help!

[MilTaxEA]

What is the average rental period? Are any other services provided along with the rent?

[luke]

se tax

SHOULD be subject to SE tax - rental of personal property (TTB 7-5)

[Hamacher]

What is the average rental period? Are any other services provided along with the rent?

No other services provided and they rent them for weekends, weeks, etc. Mainly for people on vacation.

[MilTaxEA]

Schedule C subject to SE tax. You could only make an argument for Schedule E w/o SE tax if they were renting on average over 7 or 30 days. It sounds like he is in the *business* of renting equipment (boats) out rather than renting out the boats for people to *live* on for a period of time. If it were the latter, then he could report in on a Schedule E.

[Hamacher]

Rentals

Thanks for all the answers. That is what I suspected but wanted to make sure. It was not handled properly in prior years with their last preparer. I wanted to make sure before I give them the bad news.

[Hamacher]

Schedule C subject to SE tax. You could only make an argument for Schedule E w/o SE tax if they were renting on average over 7 or 30 days. It sounds like he is in the *business* of renting equipment (boats) out rather than renting out the boats for people to *live* on for a period of time. If it were the latter, then he could report in on a Schedule E.

I just had another thought... what about those tax payers that self rent. I know of a client that has a $400,000 piece of equipment that they rent to themselves. There is a lease agreement in place. They charge a market rent, etc. In this situation, would it be subject to SE tax?

[thomtax]

I just had another thought... what about those tax payers that self rent. I know of a client that has a $400,000 piece of equipment that they rent to themselves. There is a lease agreement in place. They charge a market rent, etc. In this situation, would it be subject to SE tax?

This is probably a stupid question, but how can you rent to yourself? If an S corp, etc, I could understand where you are coming from, but the corp is its own entity so he is not technically renting to himself.

Thanks in advance for the info.

LT

[RitaB]

Big No-No

I just had another thought... what about those tax payers that self rent. I know of a client that has a $400,000 piece of equipment that they rent to themselves. There is a lease agreement in place. They charge a market rent, etc. In this situation, would it be subject to SE tax?

An individual (or SMLLC) renting real estate to himself to avoid SE tax is a big no-no.

But equipment is personal property anyway, and the rental of PP is subject to SE.

[Gretel]

Agree with Rita. If you rent equipment to a business in which you materially participate in you are considered renting to yourself and this income is subject to SE.

[RitaB]

Maybe

This is probably a stupid question, but how can you rent to yourself? If an S corp, etc, I could understand where you are coming from, but the corp is its own entity so he is not technically renting to himself.

Thanks in advance for the info.

LT

Let's say a Sch C filer, a builder, has a building to store his tools and equipment. He (wrongly) pays himself rent by deducting rent expense on Sch C, and reporting rental income on Sch E. The expense reduces SE income. The "income" is not subject to SE. Big no-no.

[taxea]

As for the boat builder, I agree that this is part and parcel to his sales and repair business. The rental income would constitute other income-equipment rentals. Are these boats being depreciated by the sales and repair business?
I may look at it differently if the type of business wasn't so closely related. And if the rental boats were actually personal property rather than business assets.
As for those who self-rent, sounds to me like they are playing fast and loose with the tax law.
I would want to know, again, if this building is a company asset. If it is then it is storage or storefront and should be depreciated on the business. It is a personal asset and he is renting it to the business then he has to declare the rent.

[Hamacher]

I just had another thought... what about those tax payers that self rent. I know of a client that has a $400,000 piece of equipment that they rent to themselves. There is a lease agreement in place. They charge a market rent, etc. In this situation, would it be subject to SE tax?

It might be note worthy to mention that the company is an S Corporation. They use to be a schedule C filer but recently elected to be taxed as an S Corp. The previous preparer did not subject the rent to SE tax. Because they are no longer an S Corp. there is no intent to avoid SE tax. I was just going to continue the rental for consistency. I just do not want him to be subject to SE tax on the rents.

[Gretel]

I just do not want him to be subject to SE tax on the rents.

Good luck with this one!

[thomtax]

Let's say a Sch C filer, a builder, has a building to store his tools and equipment. He (wrongly) pays himself rent by deducting rent expense on Sch C, and reporting rental income on Sch E. The expense reduces SE income. The "income" is not subject to SE. Big no-no.

Thanks for the clarification. As I suspected, he could not really rent to himself legally, but I was confused as to what was said.

LT