Rental property owned by two SMLLCs

[David]

A father and son each own a SMLLC . They purchased a fix and flip property which was owned 50% by each of their SMLLCs.

Since the SMLLCs are disregarded entities, is the sale of the property reported on each of their 1040s? Or is the purchase and sale of the property considered a partnership owned by each SMLLC and reported on a 1065?

Thanks.

[michaelmars]

Sounds like joint ownership since the property would have to have been titled in a "partnership name" to go that route.  btw flipping is ordinary income subject to se tax

[EricF]

I agree flipping is usually ordinary income subject to SE tax, but I think you could make the case that if a taxpayer only flips one house, they are not carrying on a business and the income classified as capital gain not subject to SE tax.

[Terry D EA]

23 hours ago, David said:

A father and son each own a SMLLC . They purchased a fix and flip property which was owned 50% by each of their SMLLCs.

Since the SMLLCs are disregarded entities, is the sale of the property reported on each of their 1040s? Or is the purchase and sale of the property considered a partnership owned by each SMLLC and reported on a 1065?

Thanks.

Agree with michaelmars, how is the property titled and to whom? Knowing this should determine if it might be a partnership. The other question is was a partnership between the two SMLLC's established? If so, everything goes on the 1065 and passes thru to the SMLLC's in their respective percentages and then onto the Sch C as a disregarded entity. Other than that, it does sound like a joint ownership.

[David]

The property is owned equally between each of their SMLLCs.

The father  owns a real estate business and he and his wife also have a rental property - Sch E.  This is the father's first fix and flip. The son is just beginning to purchase property so this is his first fix and flip.

Since the father owns a real estate company does this mean the fix and flip and the rental property previously reported on Sch E  should all be reported on Sch C  as business activities?

It appears that the son can report the fix and flip as capital gain, correct?

Thanks for your help.

[Lee B]

Your scenario is still a bit vague. How exactly is the ownership of the property titled ?

 

[Catherine]

13 hours ago, cbslee said:

Your scenario is still a bit vague. How exactly is the ownership of the property titled ?

 

This is extremely important.  Look at the closing documents, or see if the town/county has an online registry showing the listed owners.  Many times, people think they put a property in the LLC name - but it's actually in their personal name (because the LLC couldn't get a loan, among other reasons).  This could end up on Sch D instead of F 4797.