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I have a client who owns a business (LLC) that rents a unit from her other LLC that owns the residence. Would I report the rent as an expense under Sch C and then record the rent as income under Sch E? They are both sole proprietorships. Where would I depreciate the building?
Also, to further complicate things, she is renting out the other half of the residence as a residential unit as well. This is recorded as Sch E income but how would I split the depreciation since residence is 27.5 yrs and business is 30 years? Would it be 50/50?
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So the owner is not living on this property, they are renting half out to their LLC business and the other half out to tenants.
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I thought about this however, the taxpayer does not want to do the election since they do not want to worry about reasonable comp and the payroll taxes
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SMLLCs are by default disregarded entities. So keeping that in mind rephrase your question to something like:
I have a client who owns a duplex, she rents half the duplex to tenants and uses the other half as an office for her sole proprietorship.
I think once you rephrase the question like that, the answer becomes pretty clear.
