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Posted by Bill Brown on February 16, 2008, 9:05 pm
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>
> The LLC is a separate LEGAL entity. I would have the LLC rent the building
> legit, and put the rental income on schedule E and the rental expense on
> schedule C. Why would that not be permitted?
>
>
How about because the OP is trying to convert active income into
passive income so he can deduct a passive loss generated by another
activity?
How about because the OP is trying to convert income subject to SE tax
into income not subject to SE tax?
How about some other reason that illustrates that federal tax law
considers state law if and only if Congress felt like considering
state law when enacting federal legislation?
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Posted by Gil Faver on February 17, 2008, 5:09 pm
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>>
>> The LLC is a separate LEGAL entity. I would have the LLC rent the
>> building
>> legit, and put the rental income on schedule E and the rental expense on
>> schedule C. Why would that not be permitted?
>>
>>
>
> How about because the OP is trying to convert active income into
> passive income so he can deduct a passive loss generated by another
> activity?
how about if he just follows the IRS "self rental regulation"? (although it
is not clear if it applies to individuals, trusts, or LLCs not to be taxes
as corporation or partnership)
"Taxpayers can deduct passive losses only to the extent they have passive
income. If a taxpayer rents property to his or her wholly owned corporation,
IRC section 469 generally categorizes this as a passive activity. However,
when a taxpayer materially participates in the wholly owned corporation,
Treasury regulations section 1.469-2(f)(6) recharacterizes the net rental
income as nonpassive (the so-called self-rental rule)."
Treas. Reg. §1.469-2(f)(6) (The Self-Rental Rule)
The regulation states: An amount of the taxpayer's gross rental activity
income for the taxable year from an item of property equal to the net rental
activity income for the year from that item of property is treated as not
from a passive activity if the property:
a. Is rented for use in a trade or business activity in which the taxpayer
materially participates for the taxable year, and
a. Is not described in I.R.C. §1.469-2T(f)(5).
b.
In essence, this regulation provides that when a taxpayer rents property to
his or her own business, the rental profit is not treated as passive
activity income.
>
> How about because the OP is trying to convert income subject to SE tax
> into income not subject to SE tax?
I don't think this applies. Rental expense is a valid expense.
>
> How about some other reason that illustrates that federal tax law
> considers state law if and only if Congress felt like considering
> state law when enacting federal legislation?
sure. You have one?
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by removeps-groups@yahoo.com on February 17, 2008, 6:12 pm
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> In essence, this regulation provides that when a taxpayer rents property to
> his or her own business, the rental profit is not treated as passive
> activity income.
So does this mean that income from renting his building to the LLC
cannot be used to offset losses from other passive activity?
Also, it means that loss from the rental his building to the LLC are
unlimited? If so and suppose the loss is more than 25K, then on which
line of 1040 would he write his loss.
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Gil Faver on February 18, 2008, 6:13 pm
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>
>> In essence, this regulation provides that when a taxpayer rents property
>> to
>> his or her own business, the rental profit is not treated as passive
>> activity income.
>
> So does this mean that income from renting his building to the LLC
> cannot be used to offset losses from other passive activity?
It seems so, although it is unclear whether this rule applies if not
pertaining to a corporation or partnership, or and LLC taxed as such.
>
> Also, it means that loss from the rental his building to the LLC are
> unlimited? If so and suppose the loss is more than 25K, then on which
> line of 1040 would he write his loss.
so it seems. If this is true, I suppose he would just put the building on
Schedule E, and not limit its loss, and then carry the net loss over to the
1040.
If I was in this situation, I would certainly be doing more research.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by removeps-groups@yahoo.com on February 17, 2008, 5:14 pm
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> > TheLLCis a separate LEGAL entity. I would have theLLCrent thebuilding
> > legit, and put the rental income on schedule E and the rental expense on
> > schedule C. Why would that not be permitted?
>
> How about because the OP is trying to convert active income into
> passive income so he can deduct a passive loss generated by another
> activity?
>
> How about because the OP is trying to convert income subject to SE tax
> into income not subject to SE tax?
But you're allowed to arrange your affairs to minimize tax, so it
seems acceptable to use both Schedule E (for rent received) and
Schedule C (for the LLC's pass through income and expenses). Tax
avoidance is acceptable, but tax evasion is not.
The building must be rented at fair market value though.
One thing I'm finding strange these days is that with property values
so high, FMV rent is often less than mortgage + property tax, let
alone expenses and depreciation.
> How about some other reason that illustrates that federal tax law
> considers state law if and only if Congress felt like considering
> state law when enacting federal legislation?
Not sure I get this.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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