TT Business_Schedule K-1_Line 14 _Self Employment Earnings/Loss

Forum|Forum|1 year ago
February 6, 2025
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Hello,

My husband and I have a 50/50 partnership ( General and Domestic Partners) in Texas - LLC - which includes one Rental House. I actively participate in all my rentals (others listed under personal return) - keep logs - no W2 job - its what I do full time etc etc. Even though this partnership could be done on our personal return (due to community property in Texas), I'm continuing to report on the 1065 just cause the original CPA started off this way.

All previous year Schedule K-1's for each partner have Line 1 and 14 as the same number - The Ordinary Business divided in half for each partner.

Looking in Forms view right now (have not submitted the 1065 yet), it appears that line 14 on each K-1 is going to be the sum of lines 1 and 2 (ordinary business and Net Rental, vs historically it was just equal to line 1 for Ordinary business).

What could have caused Box 2 - Net Rental Real Estate to be included in Line 14 this year?

Thanks in Advance!

KMJKAuthor

Ok, so I might have just answered my own question. I see in the previous year (2023) SE Worksheet, that the CPA did NOT include the Rental Real estate value for 1b.

The reason that it was included for me, is because I answered the question for the SE Earnings asking what the Rental Real estate income was - Under Federal Taxes Tab - Other. I assumed I had to answer that question.

So.....should the rental income/loss be included in the SE worksheet and line 14 or not? Is now my question.

KMJKAuthor

OK, think I just answered my last question also - per ChatGPT.

I'll put this out here just in case anyone else has this question and trying to get clarity.......

Example of When This Applies:

If a partnership owns a building with residential apartments and provides services like maid service, laundry service, or maintenance beyond what would typically be expected from a landlord (such as replacing light bulbs or fixing leaks), the income from these services may be considered self-employment income.

Example:

The partnership owns an apartment building and offers regular cleaning services for tenants.
The rental income from the building itself would be passive income, but the fees for cleaning provided to tenants would be classified as income from services provided to rental occupants.
This income is subject to self-employment tax, and it will be reported on the self-employment earnings worksheet and included in the partner's self-employment earnings.

When Does It Not Apply?

If the partnership is simply renting out property without providing significant services to the tenants (like just renting apartments with no additional amenities or services), the rental income is generally not subject to self-employment tax.
In this case, the partnership would not report income from services provided to rental occupants on the self-employment earnings worksheet because the rental income does not rise to the level of business income.

Summary:

Income from services provided to rental occupants includes income earned from providing significant services (like cleaning, repairs, etc.) to tenants.
This income can be classified as self-employment income and will be reported on the self-employment earnings worksheet of Form 1065 if it qualifies.
The income is subject to self-employment tax, and each partner's share will be reported on their Schedule K-1.