Rental in LLC; personal use

[TaxmannEA]

We have a husband and wife who formed an LLC for a property in a resort area. They rent part of year and also have personal use days. When the days of rental and personal are entered on the Form 8825, the program (Drake) does not do any allocation of expenses as would occur on a Sch. E. Are we using the correct form (1065) or should we be using a sch E on a 1040 ? The LLC lists both as partners. Or do we just need to do the allocation manually? 

[jklcpa]

You may be able to use Sch E, depending on state law.  It's been a couple of years since I posted this in answer to another reporting question about a husband-wife LLC:

Quote

Determining whether or not a husband-wife LLC is a disregarded entity is a matter of state law. If the LLC is formed in a state that is NOT a community property state, the LLC defaults to a partnership unless an election is made to be treated as a corporation.

The exception is where the LLC is set up in a community property state and meets the exceptions in Rev Proc 2002-69.  If it meets the criteria, it is considered a "qualified entity" and may be treated as a disregarded entity for federal tax purposes.  The IRS will accept this position for federal tax purposes. Likewise, LLC may file as a partnership for federal tax purposes and the IRS will accept that position also.  Consistency in filing from year to year is key, otherwise a change in filing is considered a conversion of the entity.

The requirements under 2002-69 for the LLC to be a "qualified entity" are:

The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States;

No person other than one or both spouses would be considered an owner for federal tax purposes; and

The business entity is not treated as a corporation under the applicable Treasury Regulations.

 

None of the above addresses state reporting. Please check your state's law to verify that filing as a disregarded entity is acceptable.