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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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Form 1065 for equipment rental to a C Corp. Where do you report

Resolved Question:

Form 1065 for equipment rental to a C Corp. Where do you report depreciation? Everything else (income & other expenses), clearly goes on Schedule K. Also, given material participation, arms length & FMV rents, can loss offset non passive income? This is all closely held.
Submitted: 4 years ago.
Category: Tax
Expert:  BK-CPA replied 4 years ago.

BK-CPA :

Hello and thank you for your question.


 


Regular and bonus depreciation appears in Schedule K of Form 1065 as part of ordinary business income or loss. Section 179 depreciation expense is stated separately and appears on Schedule K also. An adjustment between depreciation for regular and alternative minimum tax purposes also appears on Schedule K.


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Losses from an activity that are not passive losses may be used to offset income from other sources, yes.


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I hope this is helpful.

BK-CPA :

PS - In addition to the passive loss limitations, you may wish to note the basis limitations and at-risk limitations. I am assuming your question indicated those limitations also do not prevent you from deducting your losses.


 

Customer: replied 4 years ago.
Per Form 1065 instructions, a partnership that regularly engages in the rental of personal property, should report income and expenses on Schedule K, line 3a & 3b respectively as "other rental activities" & attach a statement. I know where Sect 179 goes. My question relates as to whether to report depreciation expense on line 3b. Otherwise, ordinary income(expense) would consist only of depreciation expense. Also, ordinary income(expense) would be subject to SE tax. To the best of my knowlege, all rental income is passive, except for this. I have never dealt with Form 1065 for this activity, just 1040, and on 1040 reported on Schedule C, not E. Your thoughts?
Customer: replied 4 years ago.
Relist: Answer quality.
Expert:  MequonCPA replied 4 years ago.
Hi and welcome to JustAnswer:

Rental income from real estate is passive. Rental income from rental of personal property is a business and is subject to SE tax.

If you were renting the equipment as an individual the income would be reported on Schedule C not Schedule E (per Schedule E instructions).

Thus this income is subject to SE tax.

Schedule K, Line 3a will include the rental income, Line 3b will include depreciation and any other expenses (except Section 179) related to the equipment rental.
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thanks for the clarity. ON WISCONSIN!
Expert:  MequonCPA replied 4 years ago.
Glad I could help.