My husband and I are the sole member managers of an LLC which owns a condominium in the town where our kids go to college. (It is titled to the LLC and the mortgage is in the LLC's name with us as "guarantors") Currently, our son lives there with a roommate. The roommate pays FMR rent for half of an apartment (e.g. market rate is $900, he pays $450). They were both there for the same number of days.
Here's what I think I know:
If we owned this property directly, rather than through the LLC, I would allocate 50% of (1) mortgage interest, real estate taxes
, (2) direct rental expenses, (3) expenses directly related to operating or maintaining the dwelling unit, and (4) depreciation, in that order and deduct these on Schedule E of our joint federal income tax
return to the extent they didn't exceed my rents collected. I could then deduct the other 50% of mortgage interest and real estate taxes ONLY (no other sorts of expenses) on Schedule A as a second home.
If that is correct, here's my question: Do I handle it roughly the same way for the LLC. Meaning deduct 50% of expenses enumerated above against gross rents on form 8825, and then pass that rental real estate income on to schedules K & K-1, which I would then report on the second page of schedule E. (This passthrough value will be a zero as 50% of expenses exceeds my gross rent receipts.) Then deduct the other 50% of mortgage interest and real estate taxes only on Schedule A as a second home?
How do I treat additional expenses? For instance, legal expenses for setting up the LLC? What about the cost of a P.O. box I maintain only for the use of the business? Are they "ordinary and necessary rental real estate expenses" that should be deducted on form 8825 or are they instead "other deductions
" that would be entered on line 20 of Form 1065?