Real property in an LLC

[taxea]

From the Master Tax Guide:

Qualified Joint Ventures. A trade or business co-owned by a married couple who file a joint return may elect to be taxed as a qualified joint venture instead of a partnership for federal tax purposes ( Code Sec. 761(f)). 6 A qualified joint venture is a joint venture involving the conduct of a trade or business if: (1) the only members of the joint venture are a married couple, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision apply. The IRS takes the position that qualified joint ventures include only businesses that are owned and operated by spouses as co-owners, and do not include businesses that are run as a state-law entity, such as a limited liability company ( IRS Pub. 1635).

thats what I said.

[Lion]

From the Master Tax Guide:

Qualified Joint Ventures. A trade or business co-owned by a married couple who file a joint return may elect to be taxed as a qualified joint venture instead of a partnership for federal tax purposes ( Code Sec. 761(f)). 6 A qualified joint venture is a joint venture involving the conduct of a trade or business if: (1) the only members of the joint venture are a married couple, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision apply. The IRS takes the position that qualified joint ventures include only businesses that are owned and operated by spouses as co-owners, and do not include businesses that are run as a state-law entity, such as a limited liability company ( IRS Pub. 1635).

[taxea]

I beg to differ. A husband and wife rental LLC does require a partnership tax return unless in a community-property state.

A trade or business owned by a husband and wife can elect under Section 761(f)(2) to be treated as a qualified joint venture (QJV) and file two Schedule Cs rather than a partnership return. That option is not available when they are the two members of an LLC.

Read: Election for Husband and Wife Unincorporated Businesses from the IRS. An LLC is an unincorporated entity and therefore qualifies spouses, if they are the only partners to elect to be treated as QJV

[Burke]

Hmmm...tell you what. I am going to try it in my software and see what happens.

[kathyc2]

Yes, but the LLC had no other gains?

No. The expenses before sale were more than the rent revenue. 6K loss on rental, 1K interest income and 40K loss on sale of buildings.

[Burke]

Yes, but the LLC had no other gains?

[kathyc2]

That's not how I was reading the IRC 469 which you posted. Note the last lines under (A) "if all gain or loss realized upon disposition is recognized,...the excess of any loss...over any
income or gain...from all other passive activities, shall be treated as a loss which is not from a passive activity." So were there other passive activities involved with any gains? Do you have a 6252 form in the return which may be causing this to happen?

I'm reading it that the LLC itself is the passive activity, and until the dispose of the LLC rather than the underlying assets the LLC owned the passive classification stays.

No 6252. One very small land rent on Sch E that had around $100 loss for 2016.

[Burke]

The loss is properly flowing to K-1's box 10 as 1231 loss. When I enter the K-1's on the 1040, Pro is limiting the loss to passive rules. If on the 1040 K1 worksheet I check that's the partnership interest was disposed of, the full loss is reflected. My reading of 469g is that is how it is supposed to be reported, that as long as they have still have partnership interest, the loss is deferred subject to passive loss rules.

That's not how I was reading the IRC 469 which you posted. Note the last lines under (A) "if all gain or loss realized upon disposition is recognized,...the excess of any loss...over any
income or gain...from all other passive activities, shall be treated as a loss which is not from a passive activity." So were there other passive activities involved with any gains? Do you have a 6252 form in the return which may be causing this to happen?

[ttbtaxes]

This mess is the result of seeking the advice of the wrong attorney. TP should have consulted a business attorney and a tax attorney. A couple "LLC" doesn't require a 1065.

I beg to differ. A husband and wife rental LLC does require a partnership tax return unless in a community-property state.

A trade or business owned by a husband and wife can elect under Section 761(f)(2) to be treated as a qualified joint venture (QJV) and file two Schedule Cs rather than a partnership return. That option is not available when they are the two members of an LLC.

[taxea]

This mess is the result of seeking the advice of the wrong attorney. TP should have consulted a business attorney and a tax attorney. A couple "LLC" doesn't require a 1065.

[TaxGuyBill]

The loss is properly flowing to K-1's box 10 as 1231 loss. When I enter the K-1's on the 1040, Pro is limiting the loss to passive rules. If on the 1040 K1 worksheet I check that's the partnership interest was disposed of, the full loss is reflected. My reading of 469g is that is how it is supposed to be reported, that as long as they have still have partnership interest, the loss is deferred subject to passive loss rules.

Okay, yes, I think you are right. My mind was on something else.

As a side note, if the taxpayer's income was under $150,000 and he was "active", you can check that box under Line 2 to utilize up to $25,000 of that loss.

[kathyc2]

You use ProSeries, right?

On the Form 8825 worksheet, under Question #1, did you check the box saying the property was completely disposed? I think that should do it and the loss will flow to the K-1s.

On the Schedule E worksheet (for Form 1040), the comparable thing is box "H", and that is what releases all of the passive losses. I think that box I mentioned above for the 1065 is the equivalent of box "H".

The loss is properly flowing to K-1's box 10 as 1231 loss. When I enter the K-1's on the 1040, Pro is limiting the loss to passive rules. If on the 1040 K1 worksheet I check that's the partnership interest was disposed of, the full loss is reflected. My reading of 469g is that is how it is supposed to be reported, that as long as they have still have partnership interest, the loss is deferred subject to passive loss rules.

[Burke]

I am a little confused. Exactly how is ProSeries handling it? Not as a fully deductible loss? Maybe there is unrecaptured 1250 gain involved?

[TaxGuyBill]

You use ProSeries, right?

On the Form 8825 worksheet, under Question #1, did you check the box saying the property was completely disposed? I think that should do it and the loss will flow to the K-1s.

On the Schedule E worksheet (for Form 1040), the comparable thing is box "H", and that is what releases all of the passive losses. I think that box I mentioned above for the 1065 is the equivalent of box "H".

[kathyc2]

The attorney wants to keep the LLC open as the land contract is between the LLC and the buyer. The loss was around 40K so taking it all this year or next rather than in dribs and drabs makes a big difference.

I'm finding 469g which seems to support Pro's handling of it:

(g) Dispositions of entire interest in passive activity If during the taxable year a taxpayer disposes of his entire interest in any passive activity (or former passive activity), the following rules shall apply:
(1) Fully taxable transaction
(A) In general If all gain or loss realized on such disposition is recognized, the excess of—
(i) any loss from such activity for such taxable year (determined after the application of subsection (b)), over

(ii) any net income or gain for such taxable year from all other passive activities (determined after the application of subsection (b)),

shall be treated as a loss which is not from a passive activity.