Rental Property LLc tax treatment

Tell us on which form in your tax return the loss was limited and we'll be better able to identify what you did differently between the two softwares.

Did you identify your wife as a limited partner in this LLC?

Thank you for your prompt response.

The K-1 (form 1065), prepared by the LLc's CPA, lists my wife as an LLc member; and Domestic partner. The Type of entity this partner is: Individual.

The specific form where TC and TT differ is Schedule 1K-1 worksheet, section A. There the passive activity adjustment to Income (or loss) is recorded. Tax Cut transfers the losses associated with the LLc to column C - which is net Income (Loss) ALLOWED. With TC, the LLc loses further appear in form 1040, line 17 (Rental real estate, royalties .... ) with a value of (1,981).

Turbo Tax disallows the LLc losses, with the LLc data appearing in Schedule 1K-1 worksheet column (d) - which is Loses SUSPENDED for current year. On form 104,0 line 17 the value is $0.00 (vs -$1,981 with TC).

The difference between how TC and TT treat the LLc has me baffled, which is correct?

Thanks again for your time and consideration of my question.

dc

I'd be surprised if anyone here is able to answer this for you. Without actually seeing what you've entered in your software, and with the caveat that I don't use either TT or TC so I'm not familiar with how they work, you've either checked some box that you shouldn't have or not checked some box that you should have.

The two programs are treating the K-1 differently because they SEE them differently. Likely one of them is marked as a PASSIVE activity and one is not. Without knowing more about your wife's involvement, I have no idea whether she is a passive owner or not, but this matters - A LOT!

Pros familiar with Section 469 (?) passive activities have a saying - If you have PALS, you NEED PIGS!

PALS = Passive Activity Losses PIGS = Passive Income Generators

Passive losses can only be deducted against passive income. If your wife is considered a passive owner in this venture her losses will only be allowed against passive income. AND BTW - interest, dividends and portfolio income is NOT passive income, not in this sense.

You mentioned that your wife and the others select the renters, so nearly all the maintenance and PROVIDE FURNISHINGS. This last items concerns me greatly and it should concern you. Is the rental a long term rental or is it a resort/vacation type rental where the average rental period is 7 days or less? If its a resort type rental it gets treated WAY differently that if it is a long term type rental. If this is the case, then being an active member may not be enough - she would need to MATERIALLY participate.

You didn't say what line from the K-1 the loss is reported on, and quite frankly even if you told us it may not help us answer your question accurately. Keep in mind that the advice you get here, especially from the pros, is the best available under the circumstances BUT you cannot rely on it as substantive authority - essentially, you get exactly what you pay for here.

You also need to be tracking your wife's BASIS in this enterprise. The other thing that will limit her ability to deduct losses. Once she has deducted losses that total her basis in the activity, even if she is NOT passive, her future losses will be suspended until her basis increases.

A lot of people are involved in activities like this and the vast majority of them have no idea how to deal with PASSIVE activities and even more have no idea what BASIS is, how its tracked or what it means.

The best thing you can do now is file an extension and make an appointment with a local pro who understands Passive Activities. Make sure to tell them that you have a K-1 from a rental.

Good luck, Gene E. Utterback, EA, RFC, ABA