I'm wondering if an LLC member sets up a lease to the LLC for assets in the members name. I know the income must be reported to the member on a 1099. Wondering how it is reported, I think Schedule E is only real estate??? Also, was wondering what expenses the member can use to offset the rental income. Was thinking that related party rentals could not be depreciated??? Anyone experienced in this, please let me know. Thanks!
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What kind of assets is the member leasing back to the LLC? -
a dump truckComment
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The dump truck is personal property so the income would go to Schedule C. Any expenses incurred by the member personally would be deductible, for example, licenses & taxes. The truck should be depreciable if it has a basis. And, of course, you need a fmv lease payment.Comment
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You mean deductible on the C right, not the LLC???Comment
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and it is ok if under fmv, just not over fmv, correct?Comment
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I looked up IRS tax topic 414 and it says if you provided substantial services report personal property rentals on Sced C--otherwise Line 21 of 1040 (other income)---in that case wouldn't it be correct to depreciate the vehicle and subtract there? Does it matter that these are related parties?Comment
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The issue with related parties deals with the fmv of the lease. If you rent to a related party and the rent is below fmv, then the deductions are limited. For example, if you are renting a house to your mother, and the rent is below fmv, then the expense that can go on Schedule E are limited to the expenses that would normally be deductible, ie., mortgage interest and taxes. However, you cannot create a loss by deducting those other expenses that would be deductible with a fmv lease, such as cleaning and repairs.
It's been awhile since I have had to deal with something like this, but I would probably put it all on Schedule C and limit the other expenses so as not to create a loss. If only to create a better trail than putting it on line 21.Comment
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I would not touch any deal that is not based on FMV if related parties are involved. Is this a partnership LLC or a SMLLC or a Corporation?Comment
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partnership LLC---when trying to calculate a FMV lease on personal property, it seems to err on the safe side and not be over would be safe--but it does not need to be lower than FMV? Everything I've read talks about leases not being over FMV.Originally posted by Gretel View PostComment
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