Owner Occupied Multi Unit Rental

[Bert0611]

New Client  owns a 4 unit apartment building.  The building is titled to the TP.  Prior accountant listed the activity on the Schedule E to an LLC.  The TP has been paying his rent to the LLC and from what I can tell has been taking all expenses.

I can't find anything that supports this way of handling a rental. 

Thoughts, concerns direction would be appreciated.

[Just-Lisa-Now-]

So the TP owns the 4 plex and is living in one unit, but his paying himself rent as an SMLLC?

[Bert0611]

Yes,  that apparently was the advice from his previous accountant.  I believe it's been going on for 5/6 years.  I believe i would need to amend those prior years not sure this would qualify as a change in accounting since it is not correct.  That's why I am looking for some advice.

Roberta

[BobKamman]

Maybe that's why he wanted to find a new accountant. 

Could some of the expenses allocated to his unit be considered a management expense -- he has to be onsite to make repairs, collect rent and call the cops when there are loud parties?  Isn't he really overpaying his taxes, if he is counting his own rent as income?  He's not deducting it elsewhere, is he?

'Oh what a tangled web we weave/When first we practice to deceive'

[Just-Lisa-Now-]

It sounds like advice from some seminar so you could write off all your home repairs.

[Terry53029 · Accepted solution]

 @Bert0611   I would inform client that his prior returns are incorrect, and should amend the past three years. Then tell him you would do this years tax correctly. The decision to amend is his. If the deprecation is correct I wouldn't worry if he did not amend, but if that is messed up also, Unless he wants to correct his past years you can not do this years, and send him on his way