Answered: Rental in a partnership to a related party is now at less than FMV rent. The loss needs to be limited and the rental reflect zero - also not flow through to the K1s How?

loricpa100

Have the form 8825 in the partnership. All in, reconciles, yet have a loss for the year. This loss is not allowed. How to limit to zero, carry forward any unused rental loss and also ensure the rental loss does not flow through to the K1s. Seems should be similar to a vacation property that would have expenses limited to the amount of income received. Changing to Vacation property type does not do this on the 8825. Do not see another check box to automatically limit. First year the rental to son was not at FMV rent. Thanks for your thoughts on how to do this. Due Monday, of course.

loricpa100

Solution

Thank you to all who commented as I puzzled.

Going to reflect exps on number of days for the time was at FMV rent and a rental. Not going below zero.

Balance of days "personal exps" and will be either line 13 on the K1 or a supplemental schedule for them to reflect on their personal returns on Sch A.

Overall, a "$0" LLC year and recommendation to dissolve the LLC and report this personal residence in another way - maybe a TIC. Yet for now, the return.

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IRonMaN

I have never been down that road, but wouldn't you just show the rental receipts on the K-1, report the property taxes and mortgage interest on the K-1, and then show the other expenses as nondeductible?

Slava Ukraini!

TaxGuyBill

@loricpa100 wrote:
Seems should be similar to a vacation property that would have expenses limited to the amount of income received.

No, except for mortgage interest, real estate tax, and casualty losses, the expenses are not allowed at all. The non-allowed expenses shouldn't be on Form 8825.

After doing that, is there still a loss?

loricpa100

Good morning and thank you both for your thoughts.

I was going to stop the depreciation. There is still a loss with mortgage interest and property taxes. Do I have to manually put in a negative expense or other income to offset to zero? I cannot find a way for Lacerte to self limit.

I tried 366 personal days - to force it as a personal rental - nope. I tried calling it a vacation rental. Nope.

I am also discussing with the client this issue as going forward it is a personal property and not a rental and to reconsider the 2025 (and future handling).

As this year is mixed FMV and non FMV, I am going to keep on the 8825 and limit to zero -again doable with just interest and prop tax. Guess manually adjust the expenses to equal the income as cannot find a way to do within Lacerte.

If I make a footnote - doubt the partners will self limit to zero - prefer to show $0 for the rental on the K1 this year.

Thoughts?

sjrcpa

"Do I have to manually put in a negative expense or other income to offset to zero? "

Yes. I don't know of any software that does this for partnerships.

The more I know the more I don’t know.

TaxGuyBill

@loricpa100 wrote:

There is still a loss with mortgage interest and property taxes.

Have you determined if this is a not-for-profit rental? If it is, I don't think it should even be on a 8825. If a not-for-profit rental were on a 1040, it would be on Schedule 1, not Schedule E (and mortgage interest and real estate tax might be on Schedule A).

If it is a not-for-profit rental, I would think the gross income would be on page 1 of the 1065 (comparable to Schedule 1 of the 1040). The mortgage interest and real estate tax would not be allowed, but might be able to be passed to the partners (which might possibly be allowed a deduction on Schedule A of their 1040s).

loricpa100

Solution

Thank you to all who commented as I puzzled.

Going to reflect exps on number of days for the time was at FMV rent and a rental. Not going below zero.

Balance of days "personal exps" and will be either line 13 on the K1 or a supplemental schedule for them to reflect on their personal returns on Sch A.

Overall, a "$0" LLC year and recommendation to dissolve the LLC and report this personal residence in another way - maybe a TIC. Yet for now, the return.

Rental in a partnership to a related party is now at less than FMV rent. The loss needs to be limited and the rental reflect zero - also not flow through to the K1s How?

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