How do you report K-1 real estate rental income from an LLC?

August 10, 2011

From:  Andy
Date:  11 Apr 2011
Subject:  How do you report rental income from LLC on 1040?

Dear Mr. Gray,

How do you report “K-1” real estate rental income from an LLC on Form 1040?

If the only source of income is the rental income, can the taxpayer use Schedule E and not Schedule C, so that no self-employment tax is paid on the rental income?

Is an LLC required to have two members to allow rental income to go on Schedule E?

Can an individual and his wife be considered as two members of an LLC, if two members are required?

Thanks,
Andy

Answer

Date:  20 May 2011

Hello Andy,

Your questions indicate to me that you should be considering hiring a professional tax return preparer. (That’s our business!)

An LLC can be a single member LLC or have more than one member. (A husband and wife can be treated as one taxpayer for this purpose.)

The income and deductions for rental property in a single member LLC are reported at Part I of Schedule E, as if owned personally by the taxpayer. A single member LLC is a “disregarded entity.”

The income and deductions for an LLC with more than one member are first reported on the Federal Partnership Income Tax Return, Form 1065. (For California reporting, Form 568.) The LLC then issues Schedule K-1 forms to the members showing their shares of information to be reported.

The K-1 rental income is reported at Part II of Schedule E. Form 8582 may also be required to compute passive activity loss limitations.

Rental income isn’t subject to self-employment tax.

Good luck!
Mike Gray

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