Partnerhsip Question

Technical topics regarding tax preparation.
#1
TaxCut  
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I have a client who formed an LLC with two sons for an inherited property.

Each contributed $25K in cash to pay for the expenses of the property. It is not a rental at this point.

How do you enter the prop taxes paid so a 1/3 flows to each K1 to be reported on their personal returns?
 

#2
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If the property is held for investment and not a rental, I like to see taxes as Box 13W with an explanation. e.g. "Sec 212 Taxes".
 

#3
sjrcpa  
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Depends on your software but there should be a place for Schedule K Items.
 

#4
TaxCut  
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I file with Drake but also use Proseries at times to double-check myself.

Am thinking maybe a Sect 266 Election to capitalize all costs until property is rented or sold.

I read up on both Sect 212 and 266.
 

#5
CP Hay  
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How is this a partnership when the property is not a rental?
 

#6
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TaxCut wrote:I have a client who formed an LLC with two sons for an inherited property.

Each contributed $25K in cash to pay for the expenses of the property. It is not a rental at this point.

How do you enter the prop taxes paid so a 1/3 flows to each K1 to be reported on their personal returns?


I wouldn't even file a 1065. Just divide the R/E taxes in 3 and each take it .

There is no filing requirement here....
 

#7
TaxCut  
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CP Hay wrote:How is this a partnership when the property is not a rental?



southparkcpa wrote:I wouldn't even file a 1065. Just divide the R/E taxes in 3 and each take it .

There is no filing requirement here....


I agree, and that's how I normally handle these, but a 568 is required in CA when an LLC is formed.

They actually created 3 LLC's. Two as partnerships and one SMLLC. The other partnership generated $400 in nonrental income and the SMLLC just has farm property with no plans on being a rental.
 

#8
jon  
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Does everyone agree to forget the partnership? If you act as a partnership is there not a chance of penalties for late filings? I have one left that has family members sharing rental income and other activities without forming partnership. It may work (brothers and sisters), but if only one fails to report and examined could be a big problem.!!??
 

#9
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jon wrote:Does everyone agree to forget the partnership? If you act as a partnership is there not a chance of penalties for late filings? I have one left that has family members sharing rental income and other activities without forming partnership. It may work (brothers and sisters), but if only one fails to report and examined could be a big problem.!!??


Are the brother and sister married to each other? How do you not have a partnership when they are sharing rental income/other activities?
 

#10
TaxCut  
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jon wrote:Does everyone agree to forget the partnership? If you act as a partnership is there not a chance of penalties for late filings?


Does anyone in CA agree on this approach?

I would agree if they hadn't registered with the CA SOS as MMLLC or SMLLC and obtained EIN from the IRS, but they did and want to file the returns.

I have to create a 1065 to create the 568, so might as well file it. No harm, no foul.
 

#11
TaxDude  
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As others have said, they don't have a federal filing requirement since they have no business activity.

You can file the 568 without filing the 1065. I have a similar situation - client created a MMLC to hold a vacation property shared by its members. The property is only for personal use. There is no business so there is no federal filing requirement. I file the 568 each year to keep the MMLC in compliance with CA and to pay the annual $800 fee.
 

#12
TaxCut  
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TaxDude wrote:As others have said, they don't have a federal filing requirement since they have no business activity.

You can file the 568 without filing the 1065. I have a similar situation - client created a MMLC to hold a vacation property shared by its members. The property is only for personal use. There is no business so there is no federal filing requirement. I file the 568 each year to keep the MMLC in compliance with CA and to pay the annual $800 fee.


I thought about doing it that way, but what about making an election to capitalize ongoing expenses and taxes since it will probably be a rental this year or sold?

Wouldn't it be wise to make the election?
 


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