Author Topic: Paging CHEDDAR STACKER - tax rental question  (Read 1840 times)

COlady

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Paging CHEDDAR STACKER - tax rental question
« on: September 26, 2014, 09:48:43 AM »
Cheddar Stacker,

I'm helping a friend think through this rental purchase and I'm wondering if you can help? I'm a CPA but don't have a ton of experience on this side of things, only enough to be dangerous.

He is planning on purchasing a short-term rental property in Aspen, CO.  The activity will be reported on Schedule C as a business because it's a short-term rental and will be operating like a hotel (I advised him that he needs to be charging sales tax, and should run it like any other business).  He would like to purchase the property (with his wife) in the name of an LLC for liability protection. I thought yeah no problem and then started thinking about the elect-out partnership rules. 

1) Am I correct that the partnership cannot be treated as elect out if the property is titled in the name of the LLC? That's how the IRS regs read to me. 
2) You can't operate an LLC for liability protection without titling the rental in the name of the LLC, correct?
3) Should he purchase the rental in the name of the LLC and should he then be the sole member of the LLC so that elect-out is not an issue?
4) Will a lender have an issue with him titling the property in the name of the LLC? I'm assuming the down payment/closing money would need to come from an account titled in the name of the LLC?

Thanks for any help you or others well versed in this matter can provide.




Cheddar Stacker

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Re: Paging CHEDDAR STACKER - tax rental question
« Reply #1 on: September 26, 2014, 10:03:56 AM »
I've never dealt with elect out, but based on what I just read it doesn't seem necessary. This would be a single member LLC as long as they file a joint tax return. It's a disregarded entity that doesn't require the filing of a corporate return (1065). Am I missing something?

Also, I've never done a tax return for a "hotel" before. I've only seen a rental entered as ordinary income (Sch C/Page 1 of a 1065) once, and it was an assisted living facility. Maybe a hotel would be the same? So I guess I'm not sure whether it would be Sch C or Sch E.

COlady

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Re: Paging CHEDDAR STACKER - tax rental question
« Reply #2 on: September 26, 2014, 10:13:02 AM »
But if the LLC has two members (husband and wife), it's not a single member LLC right?

I've dealt with a lot of short-term vacation rental reporting on Schedule C in the past. Being that we're really close to some of the best skiing in the country, many of our clients had condos that they rented out on a short-term basis. I'm comfortable with the Schedule C reporting.

catccc

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Re: Paging CHEDDAR STACKER - tax rental question
« Reply #3 on: September 26, 2014, 10:24:28 AM »
Another CPA here (that hasn't been in public practice in years, but...)

IIRC, a husband/wife owned LLC can file a schedule C, like a single member LLC, if they file jointly. 

Cheddar Stacker

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Re: Paging CHEDDAR STACKER - tax rental question
« Reply #4 on: September 26, 2014, 10:26:28 AM »
Another CPA here (that hasn't been in public practice in years, but...)

IIRC, a husband/wife owned LLC can file a schedule C, like a single member LLC, if they file jointly.

Yep. We do it all the time. They are 1 taxpayer as a joint filer, so it's a single member LLC. Just tell them not to get divorced or file separate returns.

Good to know a short term rental is Sch C. Thanks.

COlady

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Re: Paging CHEDDAR STACKER - tax rental question
« Reply #5 on: September 26, 2014, 10:31:44 AM »
Thank you both for your responses, very helpful!