Rental Property Investor · Sykesville, MD · Member since 2018 · 18 posts · 20 votes
Hi everyone. I'm hoping to get some guidance from tax professionals in the BP community since I'm a bit stuck. I'm working on my 1065 for a two-member LLC. We established the entity and purchased our first property in July 2018. The renovations are now complete and we'll be putting the building into service this month.
I sought the help of a CPA. He told me not to file at all since we had no income and the IRS wouldn't be happy if we claimed deductions without rental income. I'm worried about not filing at all, so I'll at least file and generate K-1s with all zeros.
Questions:
Should I claim startup costs and the costs to establish the entity, but not the cost to acquire the property for 2018?
What about money I paid to contractors? The entity issued 1099s. Is it a problem if I include the 2018 1099 payments on the 2019 return as part of the capital improvements put into service in 2019?
It seems strange to hold 2018 expenses and not report them until next year, but is this correct in order to match them to revenue? If so, in doing so, would the entity still be filing using cash-based accounting?
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
7y
Sometimes the IRS will send an inquiry letter to ask why no tax return was filed. You just reply back that there was no income and/or expenses.
However, I have not seen one of these letters in well over 5 years. It could be the IRS stopped sending them out for entities without a filing history.
However, once you start filing tax returns, you do need to KEEP filing, even with zeros, until you close down the entity.
Hi everyone. I'm hoping to get some guidance from tax professionals in the BP community since I'm a bit stuck. I'm working on my 1065 for a two-member LLC. We established the entity and purchased our first property in July 2018. The renovations are now complete and we'll be putting the building into service this month.
I sought the help of a CPA. He told me not to file at all since we had no income and the IRS wouldn't be happy if we claimed deductions without rental income. I'm worried about not filing at all, so I'll at least file and generate K-1s with all zeros.
Questions:
Should I claim startup costs and the costs to establish the entity, but not the cost to acquire the property for 2018?
What about money I paid to contractors? The entity issued 1099s. Is it a problem if I include the 2018 1099 payments on the 2019 return as part of the capital improvements put into service in 2019?
It seems strange to hold 2018 expenses and not report them until next year, but is this correct in order to match them to revenue? If so, in doing so, would the entity still be filing using cash-based accounting?
Thank you so much for your help!
File and just show all capitalized expenses on your balance sheet. Depreciation can only begin once assets are placed in-service. In-service date is a tax term, and your CPA should (hopefully) explain to you what that date is.
It is fine to not showing expenses for the 1099s you issued as you are capitalizing the amounts and they anyways get run through your general ledger. Make sure the box that you filed 1099s is checked yes.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
7y
You actually are not required to file a partnership return if there were no deductible income or expenses.
"Who Must File Domestic Partnerships Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes. Entities formed as LLCs that are classified as partnerships for federal income tax purposes have the same filing requirements as domestic partnerships."
My advice if it will make you feel better have the CPA file and extension and handle it outside of tax season when its not so busy as there should only be balance sheet and capital account entries.
Rental Property Investor · Sykesville, MD · Member since 2018 · 18 posts · 20 votes
7y
@Steven Hamilton II@Lance Lvovsky Thank you so much for replying. How does the IRS know the entitiy doesn't have income or expenses to warrant a return? Will not filing result in a notice or fine? Thank you!
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
7y
Sometimes the IRS will send an inquiry letter to ask why no tax return was filed. You just reply back that there was no income and/or expenses.
However, I have not seen one of these letters in well over 5 years. It could be the IRS stopped sending them out for entities without a filing history.
However, once you start filing tax returns, you do need to KEEP filing, even with zeros, until you close down the entity.
I agree with my esteemed colleagues' points but not with their conclusion to not file. The expenses specific to the property must indeed be capitalized and held for the future.
However, your company almost certainly had some general expenses in 2018, not directly related to that property. For instance, the cost of forming the LLC itself. I suspect there were more items like that. Those should be deducted in 2018, despite zero income.
We created a multi member IRA LLC for the sole purpose of purchasing land. There are no buildings on it. We have had no income and the only expense we have had is property taxes but we don't need to expense those because they are very minimal. Because this is all new to us, we filed a 1065 last year. But, while filling out our 1065 this year we came upon what
@Steven Hamilton II is saying above, and it sounds like we do not have to file. @Linda Weygant, do you think because we filed last year, we should continue filing?
Also, inside our IRA LLC is a Roth and a Traditional. In 2018, we did a conversion of 20% from the Traditional to Roth. With this added complexity and info, do either of you think we should file a 1065 for 2018?
We created a multi member IRA LLC for the sole purpose of purchasing land. There are no buildings on it. We have had no income and the only expense we have had is property taxes but we don't need to expense those because they are very minimal. Because this is all new to us, we filed a 1065 last year. But, while filling out our 1065 this year we came upon what
@Steven Hamilton II is saying above, and it sounds like we do not have to file. @Linda Weygant, do you think because we filed last year, we should continue filing?
Also, inside our IRA LLC is a Roth and a Traditional. In 2018, we did a conversion of 20% from the Traditional to Roth. With this added complexity and info, do either of you think we should file a 1065 for 2018?
Thanks in advance!
I sure hope the correct elections to capitalize carrying costs were made... Technically yes since there is a deduction it must file a return.