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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7118
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Do I need to file 1099s if I own a residential rental property?

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Do I need to file 1099s if I own a residential rental property? I have had it a few years since we moved (our old home), but this last year I created an LLC with the thought of gaining more properties. I still only have the one rental. I am using turbotax and where last year I just used the rental software, I bought the business owner software and am running the property through the business owner section. Does that make sense? Anyway, within the business section, it asks "Did you or will you file all required 1099 forms?"

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Customer:

Hi

Stephen G :

It belongs on Part 1 of Schedule E - Rental property

Stephen G :

You do not need to send 1099s

Customer:

OK, thanks. So with my new llc, do you think I should be running my rental through the business section of Turbo Tax, or just the rental section?

Customer:

Last year I just ran it through the rental section and claimed deductions there. But I got an ein to protect myself a bit this year.

Stephen G :

The rental section, one rental property doesn't constitute a trade or business;

Stephen G :

Did you transfer title of your property to the LLC?

Customer:

one second, let me check...we did refinance and may have, but not sure of the date.

Customer:

no, it's in my name...I guess all I really did is have the new rental agreement be in the business name.

Customer:

so should I even be saying I have a business at all? Or just run it all through the rental portion of turbo tax?

Customer:

in my name?

Stephen G :

Well, one problem you are going to have if you have losses from your rental activity and you expand that activity, is the passive activity loss rules. You can't sidestep those limitations by trying to report the rental on a Schedule C.

Stephen G :

If you show a profit, then you would have to deal with self-employment tax.

Customer:

even w/ an llc?

Stephen G :

Do you have an accountant?

Customer:

no

Stephen G :

What do you mean "even with an llc"

Stephen G :

An LLC is a non-tax entity; a disregarded entity for tax purposes; so in terms of anything to do with taxes, the LLC doesn't exist; you have reporting options for the LLC, but there's no LLC tax return;

Stephen G :

If you go beyond a few rental properties, you really should engage a local CPA as some of these rules can get tricky in terms of the reporting;

Customer:

the self-employment tax...would the rent be profit shown through the llc or through me personally, or is it one in the same w/ an llc whether reported as a business or as a rental?

Customer:

I see.

Customer:

Ok, I'll do that.

Stephen G :

Anything on a Schedule C is subject to self-employment tax

Stephen G :

anything on a Schedule E is not

Stephen G :

Things like Inns, Motels, hotels would go on Schedule C

Customer:

So for now, do you recommend just doing it w/ the rental portion and not mentioning my llc in my returns?

Customer:

schedule c and not e?

Stephen G :

Rentals extending longer than 30 days are generally Schedule E unless you provide a lot of services

Stephen G :

Schedule E

Stephen G :

just like you always have done it pre-llc

Customer:

right, I meant e, sorry, not c

Customer:

Ok, I'll go w/ that for now. Thank you.

Customer:

one more thing

Customer:

so is the llc doing anything for me right now?

Customer:

I mean, having it on the rental agreement?

Customer:

any protection against unforeseen loss, lawsuits, etc.

Stephen G :

Before you get involved in additional properties, you probably should consider at lease meeting with a local CPA for a consultation on the best way to handle these things going forward

Customer:

yes, I will do that.

Customer:

But for this one property...

Customer:

is my llc doing anything?

Customer:

I don't want to go to a cpa to have him say come back when you have 3 properties. Waste of money.

Customer:

But also want to know if I'm wasting my time putting my llc on the rental agreement.

Stephen G :

There's not a simple answer to that question; however, let me answer it this way; the best protection whether or not you operate as an LLC, Sub S Corp, or a trust, is a good liability insurance policy; I always have told my clients that if you were sued, these days everyone gets sued, there are a lot of ways to get at someone, with or without these entities; the insurance buys you a defense which can get real expensive even if you win; so having the liability insurance is exceedingly important; there are so many tenant rights these days; probably the most important decision when it comes to residential rental property, is who your tenants are & what kind of references they have, especially if children are involved.

Stephen G :
If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.


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Thanks very much, Steve G.
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