Would a Real Estate Professional pay SE income tax within an LLC

[David Gradman]

Question for the CPA's and Tax Lawyer's out there.

If I own a rental property within an LLC and I (or my spouse) meet the criteria for tax purposes of being a "Real Estate Professional" would Self-Employment (SE) taxes ever be an issue?

I don't think it would because the IRC code IRC Section 1402(a)(1) states rental income is free of self-employment tax.  The only reason I am doubting this though is that the reason rental income is exempt is because it is considered passive income but by designating as a "real estate professional" it is turning my rental activities into a non-passive activity (allowing my real estate losses to offset against ordinary income).

Let me know your thoughts or if anyone has any experience with tax reporting for "Real Estate Professionals" within an LLC. Thanks!

Dave

[Ashish Acharya]

Originally posted by @David Gradman:

Question for the CPA's and Tax Lawyer's out there.

If I own a rental property within an LLC and I (or my spouse) meet the criteria for tax purposes of being a "Real Estate Professional" would Self-Employment (SE) taxes ever be an issue?

I don't think it would because the IRC code IRC Section 1402(a)(1) states rental income is free of self-employment tax.  The only reason I am doubting this though is that the reason rental income is exempt is because it is considered passive income but by designating as a "real estate professional" it is turning my rental activities into a non-passive activity (allowing my real estate losses to offset against ordinary income).

Let me know your thoughts or if anyone has any experience with tax reporting for "Real Estate Professionals" within an LLC. Thanks!

Dave

 No, rental Activity would not be subject to SE tax even with your pro status.