Where / How to file rental income?

Question

My husband and I acquired 3 small commercial properties via 1031 exchanges.

The relinquished properties (residential) were originally purchased in the name of a simple revocable H+W trust. H+W are the only 2 trustees of this Trust. 3 small properties acquired in total.

The 1031 exchange company had asked to us to make sure we purchased the new properties in the name of a Single Member LLC and that the Trust was the only member of these LLCs. The only trustees of the trust are my husband and I.

3 properties so we formed 3 LLCs.

Question

************ Which form do I use to report the rental income of these properties in my federal income tax return? In Sch E? In Form 1041? Some other form?

I would like to keep it as simple as possible.

Stuart O. Bronstein · Accepted Answer

First, if the exchange trustee told you to take title as an LLC, and if that information didn't come from your own tax preparation professional (CPA or Enrolled Agent), something could have gone very wrong.

The fact that you are asking these very basic questions indicates that you really need to engage the services of a tax pro.

First you have to understand that the IRS does not recognize LLS's for income tax purposes. So when you use an LLC you must select it to be taxed as an entity the IRS does recognize: C-corporation, S- Corporation, or proprietorship (with one member) or partnership (with more than one member). If you make no election, the default is proprietorship/partnership, which means you and your spouse can put this on a joint 1040.

In addition to that the basic form is Schedule E.

Then if you are claiming depreciation, there's Form 4562.

If you use accelerated depreciation, you may be subject to the AMT. In that case use Form 6251.

If you have a passive activity loss you need to file Form 8582.

That's about as easy as it gets. Get help to do this properly. Setting up the LLC's to take title to your properties probably didn't but may well have completely screwed up your 1031 exchange.

Where / How to file rental income?

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