Rental houses; Schedule E to Schedule C or vice versa conversion

[rentals10]

I have 9 rental properties, all titled to my LLC. I had been filing a Schedule C for the past several years and just recently turned a 'profit' after all the deductions. As a surprise to me I need to file a Schedule SE and pay about $3,500 in self employment taxes where in prior years, I showed a modest loss.

I titled under the LLC on advice of my estate lawyer, and it is easier to file my tax return. My question is, can I convert them back to my personal name and file a Schedule E for future years to avoid the FICA taxes. And, if so, what basis should I use and how many more years of depreciation after the title transfer? What asinine forms do I need to fill out for the conversion from LLC to my own name?

The accountant/CPA that I had been using passed away and some of the tax people that I have talked to have no clue.

Thanks for any advice.

 

[davew9128]

Your CPA advised you to file rental activities on Schedule C all those years? He must have been half dead to have suggested that. There are only VERY limited circumstances where this would have been correct.

 

[rentals10]

No, it was my estate lawyer who advised me to do the LLC. In the past years, I showed a paper loss because I had to rehab the places, had lots of expenses, it took some time to get them all rented to decent folks, ....

Now, that I FINALLY have some decent folks living in these houses and actually making some bucks, I am being taxed to death. The CPA that I had been using, passed away just after I bought all these houses and I had been doing the taxes myself.

So, can I quit claim deed them to myself and avoid all this stuff in the future? If so, do I use whatever the depreciated basis is to do that?

Another question if you are inclined to answer.

Years ago (about 30) I bought a house to rent out. I FULLY depreciated it and it was in my name and my wife's name. We are now divorced. My son had been living in it, but he moved and I want to rent out it now. If I do that, can I use the now current market value as the basis or ????

 

[davew9128]

No, it was my estate lawyer who advised me to do the LLC. In the past years, I showed a paper loss because I had to rehab the places, had lots of expenses, it took some time to get them all rented to decent folks, ...

LLC's don't automatically go on Schedule C. You're missing the point.

 

[rentals10]

Ohhh. So are you saying that I can have them in my LLC and still file a schedule E for them? Or ???

 

[FlyingRon]

If you're the only member (owner) of the LLC, then it is a disregarded entity. You report the rents, etc... as if they had been directly paid to you.
Even if you had stock in a corporation or multi-owner LLC, sched E probably isn't the right answer. I suspect you have had some bad advice. The LLC probably isn't doing any good, but in most states (you didn't say what state you are in), it's not doing any harm either.

 

[adjusterjack]

Schedule E or C, I think you pay SE on a net gain either way.

 

[LdiJ]

Schedule E or C, I think you pay SE on a net gain either way.

No, rental income on Schedule E does NOT result in self employment income.

 

[LdiJ]

LLC's don't automatically go on Schedule C. You're missing the point.

A single member LLC does normally default to a Schedule C. However, in this instance it maybe should have defaulted to a Schedule E.

The problem however is potentially complicated. If the OP's overall income meant that they were limited in taking Schedule E losses that might have explained why a tax advisor (probably incorrectly) recommended that they file as a Schedule C. That would have allowed them to take losses that otherwise might not have been able to be taken if they filed the rental income and expenses on Schedule E.

Trying to switch to Schedule E now that there are profits is possibly problematic if I am correct in what I suspect. The OP needs a consult with a local tax professional who can research the issues to determine where they stand at this point.

 

[davew9128]

A single member LLC does normally default to a Schedule C. However, in this instance it maybe should have defaulted to a Schedule E.

I disagree. The default reporting is wherever the activity would go if it were not an LLC. The only way a SMLLC reports a rental on Schedule C is if it considered not a rental and is a business such as a hotel or B&B. Otherwise it goes on Schedule E. I also dont see a problem with reporting it correctly going forward even if prior years are botched.

 

[LdiJ]

I disagree. The default reporting is wherever the activity would go if it were not an LLC. The only way a SMLLC reports a rental on Schedule C is if it considered not a rental and is a business such as a hotel or B&B. Otherwise it goes on Schedule E. I also dont see a problem with reporting it correctly going forward even if prior years are botched.

I did state that it maybe should have defaulted to a Schedule E, so we are not disagreeing there. I see a real problem if the prior years allowed losses taken on a Schedule C would otherwise have been limited on a Schedule E. In that instance at a minimum the prior year returns should be amended to report the income and expenses on Schedule E rather than on Schedule C.

If that is done I definitely see no problem going forward on Schedule E.