LLC issues 1099 for rent of clients Sch C equipment

[schirallicpa]

Client has LLC set up, and is also "self-employed" doing the same business. (It's a wonderful treat to sort thru their transactions to figure out if it's his or llcs......) Anyway - LLC gives him a 1099 for rent of equipment - that equipment being the schedule C equipment. (No - I did not set this up!) Of course they expect the 1099 rent income to be free of SE tax and reported on Sch E. I'm thinking this is still schedule C income to him.... If it can go on Sch E, how on earth do I allocate depreciation of the same equipment between E and C.

Shouldn't Sch E rent only be "passive"? I don't think this money is passive. This is the business that he is in!

In my mind, I'm relating this to other clients I have who get "royalty" income for crude oil production, when in fact, they are the producers and therefore it is SE income on schedule C.

You always get the best clients late in the season!

Any thoughts out there today?

[OldJack]

Sounds like he is renting personal property to the LLC and that goes on a 1040 Sch-C, subject to SE tax. If the rent is for real estate, that would go on a 1040 Sch-E not subject to SE tax. There should be 2 forms 1040 Sch-C, one for the LLC, subject to SE tax and one for the personal property rental business subject to SE tax. Two Sch-C's as the rental is probably passive and cannot be combined with the active LLC business especially if there is a passive loss. Depreciation is not allocated as it must be taken by the one designated as owner of the property and that could only be the one receiving proper rent income.

[zeke]

With the facts given, and assuming that only participant in LLC is taxpayer, I would be very inclined to put all business income & expense on one schedule C. All the "rent" etc back & forth is just one pocket to the other.

Zeke

[OldJack]

>> just one pocket to the other<<

Unless the LLC is being sued and has to show that it was being treated as a separate business entity in order to not lose its limited liability status in court. A separate Sch-C for the LLC would help with that determination.

Also, if the rental business has a loss it is probably a passive loss that can only be deducted against passive income or carried forward for future deduction against passive income and the LLC appears to not be a passive activity.