Query on Schedule E

My husband and I have an LLC and thru it we lease out a small commercial property. (2 member LLC)
Can we add the income and expenses of this property to Schedule E as part of our 1040 taxes?
(instead of filing form 1065 and preparing K-1's etc)
Reply to
Christine
Apparently, if you are in a "community property" state; under state law, the LLC is considered community property; and you do not treat the LLC as a corporation, then the LLC is a disregarded entity for Federal tax purposes.
Otherwise, not, although there will be very little difference on your returns if you treat the LLC as an S-corp.
-- Arthur L. Rubin, Brea, CA
Reply to
Arthur Rubin
There are two of you so you can't be a sole proprietorship. You can not be a husband/wife qualified joint venture because you created an LLC. Therefore, you are either a corporation or a partnership. Either way, you can not avoid filing either the corporation return or a partnership return. As you are the ones that created the LLC, you should know whether you are a partnership or a corporation.
Reply to
Alan
What matters is where you live, not where the property is located. If you live in Florida, that does not change the answers that you have received. Florida is not a community property state.
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of those states, the answers might change.
Bob Sandler
Reply to
Bob Sandler
A multi-member LLC is treated as a partnership by default. To have it treated as a corporation you would have to have filed a form with the IRS electing to treat the LLC as a corporation (Form 2553 or Form 8832). If you have not filed such a form, your LLC is treated as a partnership for income tax purposes, and you must file Form 1065, including the Schedule K-1s.
Bob Sandler
Reply to
Bob Sandler
Thank you for all your responses.
Just to clarify further. We are residents of CA for 2018 tax purposes but the small commercial property is in FL. Not sure if this info will change any of your answers.
Reply to
Christine
I am a California tax preparer, but the question of whether the LLC is considered community property under California law is too complicated for me. If it is, then it is probably a disregarded entity under Federal law. Wherever the LLC is registered, it probably needs to pay the $800 California LLC tax. -- Arthur Rubin, Brea, CA
Reply to
Arthur Rubin
.

The question of community property in OP's case comes down to this: where did they reside when they earned the money being reported on the tax return? If they earned the money while being California residents, it's community property. If they were Florida residents when the money was earned, it's not community property.
Reply to
Stuart O. Bronstein
If the LLC is community property they have a choice of treating it as a disregarded entity or treating it as a partnership. See Rev. Proc. 2002-69. Based on the original question, it seems that the OP would like to treat it as a disregarded entity, if they have that choice.
Here's a link to Rev. Proc. 2002-69:
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Bob Sandler
Reply to
Bob Sandler
.
If the property was community property while they resided in a community property state, it does not loose its community property characterization if they move out of state to a non-community property state. But what about the earnings? If the earnings come from community property, they remain community property, right?
Not of relevance to the OP, though.
Reply to
Taxed and Spent
How property is characterized at any given moment is based on the state of residence at that time, and also the state of residence when the property was acquired. So money earned while residing in California is community property. If the couple then moves to Florida, it's still owned half by each spouse, but it may no longer be considered community property under state law.
In this case OP said they were originally in Florida (not a community property state), but then moved to California (a community property state), and she wondered how to file a tax return for a disregarded LLC for the time they lived in California.
Reply to
Stuart O. Bronstein
OK, this is a bit confusing to me. An LLC taxed as a partnership IS a disregarded entity, which the Rev. Proc. itself states. But it also states that a husband and wife can elect to be taxed as a partnership or a disregarded entity, which seems to contradict the former statement.
I think they mean that the husband and wife can either file as a partnership or each file a Schedule C claiming half the income and half the deductions, if it's located in a community property state.
Reply to
Stuart O. Bronstein
a partnership, having to file a partnership return, is not a disregarded entity.
If the property is community property, I think they can file a single Schedule C (or E, more likely).
If the property is not community property, they each own their share as separate property. Then what? Two Schedule Es? A partnership return?
Questions for OP: explain how you acquired this property, with what resources, and the nature of those resources (community property?)
Reply to
Taxed and Spent
If the LLC is registered in FL, and not doing business in CA, it does not have to register in CA and does not have to pay any franchise fee to CA.
Reply to
Taxed and Spent
In article ,
Only a single member LLC can be disregarded, and not if it's elected to be taxed as a corporation.
Reply to
John Levine
If the only people who work for the LLC are its members, and they reside in CA, then the LLC is supposed to register to transact business in CA. If they collect rent from FL and do their bookkeeping in CA, they are transacting business in CA.
Reply to
Stuart O. Bronstein
Based on Bob Sandler posting the revenue procedure I have to modify my answer as there is one other option. Assuming that the couple did not file incorporation papers with CA, it is a partnership. The RP states that it can be considered a disregarded entity (no 1065 need be filed) if the owners are husband and wife, hold 100% of the ownership and it is not a corporation. In this instance it would be their choice to make on the first filing of a tax return. If it is CP and they choose to treat it as a disregarded entity on a joint return they would report income and expenses on a single Schedule E if the commercial property is rental property or they would report the income and expense on two Schedule Cs (one for the husband and one for the wife based on the community interest) if the commercial property is a business. It would only be a business if the owner(s) provide substantial services for the tenant's convenience beyond just utilities and trash collection. CA assumes that all property regardless of situs obtained by a married couple during their marriage other than by gift or inheritance is community property unless the couple can show that the property is separate.
Reply to
Alan
I agree with the rest of your statement. But as far as community property is concerned, it's not just an assumption, but it's the law: any money or property earned by a married person in California, as a result of his "skill, foresight or industry" (services) is community property unless there is a written agreement between the spouses designating it as something else.
Reply to
Stuart O. Bronstein

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