Self Employment Tax on Asset Management Fee?

[Kyle Mitchell]

I just purchased my first two apartment building via syndication last year and we collect a 2% asset management fee. My CPA is now telling me that this asset management fee will be subject to self employment tax. I run this fee through my company (LLC) and do not take any distributions. Is this accurate that this fee should be subject to a self employment tax?

[Linda Weygant]

It depends on how your syndication is set up. If it's deemed to be a management fee, then yes. It is essentially a Guaranteed Payment for services rendered by a member/partner and so it is subject to self employment tax.

If it's meant to be a preferred distribution because you've got two classes of owners, then no - it should be a distribution.

Check your operating agreement to get a firm understanding of this.