Below is the scenario that is unfolding for us. Looking to minimize taxes and and maximize retirement funding.
Appreciate any insights.
I am part of a multi member LLC that has rental properties taxed as a Partnership.
We sold 2 properties (held for 20 yrs) which have accumulated a lot of depreciation.
Using Turbo Tax Business, I see a Section 1231 Gains on my K-1. ($105K)
Question: Can these Long Term Section 1231 Gains be Treated as Ordinary Income for the Partners?
I would like to salary defer (max. SOLO 401 K limit of $53K) with Income.
Our net income for the properties this year was only $20K from rents since the buildings were empty during the listing/sale period.
When you sell any investment or rental property you are subject to depreciation recapture.
It is a 1231 gain there is no way to make it regular income for the business. It's the gain on the sale of the property- not income.
The gain is un-related to the income for the year.
Unfortunately your rents would not qualify either unless you have guaranteed payments.
"Compensation. Compensation for plan allocations is the pay a participant received from you for personal services for a year. You can generally define compensation as including all the following payments.
- Wages and salaries.
- Fees for professional services.
- Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items.
- Commissions and tips.
- Fringe benefits.
For a self-employed individual, compensation means the earned income, discussed later, of that individual."