Family Llc Rental Property

[LMathey]

This seems to be my year for LLC's. This family set up an LLC that purchased a condo in a popular ski area. They are successfully renting it (108 days in 2007) but also have some personal use not exceeding 10% of rental days.
1. Should the interest and real estate taxes be pro-rated between rental and personal days? 108/365??
2. If yes how do I handle the days that are neither rental nor personal? Do I ignore them or allocate them to personal?
3. Is the personal portion deductible it on their 1040's as 2nd home or investment expense?
4. Someone told them that it would not be deductible but would increase their rental income. Could that be correct?

I would appreciate any advice or direction.

Thanks.

LMathey

[solomon]

As I recall, 108 / (108 + personal days) = rental expense per cent. Balance of taxes on Sch A. Not enough personal days to make it a second home.

[LMathey]

One more question

Could you deduct the mortgage interest disallowed on the 1065 as investment interest rather than 2nd home?

Would there be any case where the mortgage interest and real estate taxes disallowed would be added to the rental income? The tax preparer last year added both of these to income and showed on Schedule E.

[solomon]

Would there be any case where the mortgage interest and real estate taxes disallowed would be added to the rental income? The tax preparer last year added both of these to income and showed on Schedule E.

No. I would recommend amending the prior year.

[joanmcq]

Could you deduct the mortgage interest disallowed on the 1065 as investment interest rather than 2nd home?

Would there be any case where the mortgage interest and real estate taxes disallowed would be added to the rental income? The tax preparer last year added both of these to income and showed on Schedule E.

HUH? never heard of such a thing. disallowed RE on Sch A, but no mort interest on A unless over 14 days of personal use OR 10% of rental. So maybe on the mort int will be deductible. Whether you allocate expenses by 108/108+personal (bolton decision) or 108/365 (IRS preferred method) is up to you and the client. The Bolton method is more aggressive, of course.

[LMathey]

Please clarify the mortgage interest/personal days

Are you saying that if the personal days each year exceed 14 or more than 10% of the rental days that the mortgage interest would be deductible on Schedule A?

Sorry to be so persistent but would like to be able to get this deduction for them. For the interest and RE taxes they used the IRS method (118/365) Maybe I should go back to them and question the personal days.

I know they spend at least one week a year doing maintainence there. This year replaced the kitchen cabinets, countertops and painted but I do not think these days count as personal since they are there doing work.

Thanks for any insight.

[joanmcq]

oops, its the greater of 14 days or 10% of days unit was rented. See TTB pages 7-7 thru 7-8 for the specifics of allocation and the Bolton vs IRS methods of allocating.

[LMathey]

Thank you!

Thanks for your response. Upon questioning they have used the condo in the off season for 41 days.