tax filing under LLC or personal rental income?

Question

This is my first year holding rental property. I hold title to it in an LLC but the mortgage is in my name. While filling out my taxes I placed the rental income as the LLC income, thereby creating it as business income subject to self employment tax. With depreciation it is a loss and therefore self employment tax is 0. My question though is, would it be better to file it under Personal Rental income rather than income through an LLC? Since it is a sole LLC, it is a pass through entity anyway. I do have a tax id number for it but I don't know if that means I have to file with it or not. Just trying to verify the best tax strategy. Thanks for the continued BP community support.

Logan Allec · Answer

@Don Spafford Running a business through an LLC or not (assuming LLC has not made an election to be taxed as a corp or S corp election) has no bearing whether it's subject to self-employment tax. Assuming this is just a plain vanilla rental, it should not be subject to self-employment tax, and it belongs on Schedule E, not Schedule C, where it sounds like your tax software is currently putting it. I'd recommend you work with a tax professional to make sure everything's done right because it just gets more expensive to fix things later on...that whole "ounce of prevention" thing.

Steven Hamilton II · Answer

It is to be reported as rental income. As far as the IRS is concerned LLCs do not exist. You can make an election to have it taxed as an entity however this may not be in your best interest without a specific strategy.

Dave Toelkes · Answer

@Don Spafford

Your LLC rental income and expenses are still reported on Schedule E as if the LLC did not exist. No Schedule C income, no self-employment income tax.

Dave Toelkes · Answer

Not exactly. Regardless of how many single-member LLCs treated as disregarded entities you have, each separate rental property has its own Schedule E entry (they are not lumped all together into one property). If you have 14 rentals in 14 separate LLCs, each property with its income and expenses is listed on Schedule E as if the LLCs did not exist.

The Fix-and-Flip single-member, disregarded entity LLC is an active income business reported on Schedule C and your flip income is also subject to self-employment income taxes.

Don Spafford · Answer

@Dave Toelkes Thanks, that makes sense. Very much appreciated.

Don Spafford · Answer

Thanks everybody! So this would hold true for any single member LLC? So if there is a fix & flip LLC, and a rental LLC for multiple properties with each property on its own LLC, rather than filling out multiple unique LLC information on a return, it would all just be lumped together on schedule E as one source of personal income?

Don Spafford · Answer

@Steven Hamilton II@Logan Allec Thank you for the great information and advice. I appreciate it!

tax filing under LLC or personal rental income?

tax filing under LLC or personal rental income?

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