Level 7

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Husband-and-wife LLC partnership

Forum|Forum|4 years ago
January 4, 2022
3 replies
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Husband and wife formed LLC 50-50 partnership. Should I file a separate Form 1065 for them, or can I include as a Sch C (or E) and simply check the box that it's husband+wife owned? They are wealthy, and I want to protect their other assets in case of lawsuit. I assume keeping funds strictly within an LLC bank account should work in either 1040 or 1065?

My second issue is that they want this property for: long term rental, short term rental, and wedding venue. How to handle a switch back and forth from C to E?

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Best answer by dkh

Ask the client for all the documentation for the LLC - Articles of Organization, SS-4 letter, etc

those documents will help you understand what the LLC filing requirements will be - 1040 or 1065

Answer for Q 2) 27.5yr is Residential Rental Real Estate does that apply to this property ?

Answer for Q 3) Is IRS expecting a F1065 return from this LLC ...... you need the LLC documents possibly you will need to file a return with $0 activity

PATAX

Level 12

Greta, if you have a separate partnership entity set up then I would imagine you would just file a 1065 partnership return with the applicable K-1 forms. And yes a partnership can have rental real estate income and regular business income, I.E. it will be segregated on the K-1 form which has separate lines for each of the aforementioned. Also I would imagine a partnership LLC has the same legal protection as a sole proprietor LLC... just my opinion... Happy New Year

G

GretaAuthor

Level 7

Thank you for your response. It's an LLC is all I'm told.

1) I could either include in their personal return or prepare separately 1065. Any advantage to either?

2) What depreciation do I choose if purpose is either rental or commercial. 27.5 or 39 yrs?

3) In 2021 all that was done is the purchase and renovations, no business yet. Do I wait till 2022 to report anything.

PATAX

Level 12

Greta remember a partnership return has to have at least two partners, IE you cannot file a partnership return with one owner. So it sounds like there would just be one partnership with the K-1 forms going to the two owners. Residential real estate is 27.5 years and Commercial Real Estate is 39 years. Just my opinion

JRC

Level 7

Husband and Wife and (Spouses) LLC's in "Marital Property States" may treat the LLC as a disregarded entity. Either way I would look at the advantages of doing either for the client.

The IRS has issued a special rule applicable to LLCs owned by married couples who live in community property states. Under this rule, a married couple can treat their jointly owned business as a disregarded entity for federal tax purposes if: ... the business is not otherwise treated as a corporation under federal law.

G

GretaAuthor

Level 7

So this rule is only for community property states? My client lives in DC but property is located in NY. Is either a community property state?

JRC

Level 7

I have no idea on DC, but NY is not. I would look at filing a 1065 especially since the property is located in a different State.

T

TaxGuyBill

Level 15

Because it is a LLC, the Qualified Joint Venture option only applies to Community Property States ( a non-LLC can do it in all states). So that does NOT apply to your situation, so you must file a Partnership return.

If "services" are provided, the goes on Schedule C. If "services" are not provided, it goes on Schedule E. For the determination of self employment tax (Schedule C versus Schedule E) does not matter if it short-term or long-term (although short term increases the likelihood that "services" might be provided). If "services" are provided for the weddings but not for the other tenants, then you enter the wedding would go on Schedule C, and enter the business percentage on both of the Asset Entry Worksheets.

The default depreciation is 39 years. If 80% of the rent is from the dwelling units (people living in it WITHOUT "services" being provided, rather than used for weddings or providing "services" to the tenants), it changes to 27.5 years. If it qualifies for one length of depreciation one year, but changes to a different one the next year, well, that gets more annoying, but you have the option to keep using the longer depreciation period.

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