If your LLC sublets a property, do you deduct the rent expense on Schedule E or on Schedule C?

Forum|Forum|3 years ago
February 24, 2023
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Let's say your LLC is renting an entire building for $20000. The LLC subleases 1/3 of it to random tenants that are not a part of the LLC's business. It receives $4000 in rent from those tenants. I assume this rent has to be on a schedule E in order to avoid self-employment income (since this is passive income anyway). Now, is the LLC still allowed to deduct the full $20000 rent expense on schedule C? Or does it need to split it into thirds, and deduct only 2/3 on schedule C and 1/3 on schedule E as an "expense"?

What about other expenses that are related to the whole building? Let's say your LLC has to pay the water/sewer for the whole building as well. How does this expense get deducted? Split between 2/3 and 1/3 or just deducted on schedule C?

Not A Product Question

Carl11_2

Employee

If the primary function of the LLC is *not* renting out property, then the sub-lease is included on the SCH C. For example, if you own a bait & tackle business that sells product and services, that is of course reported on SCH C. If your business pays rent for it's operating location, that is a SCH C business expense. If your business sub-lets a part of the building it pays rent for, then that rental income is reported on SCH C. Nothing needs to be reported on SCH E.

If the business owns the building, then you already claim the mortgage interest on SCH C and you already depreciate the building over 39 years. Nothing needs to change on that front. The rental income is basically included as "a part of" your regular business income.

The business will continue to deduct other business expenses such as utilities as normal, since most likely there is no separate metering between the building you rent or own, and the section of that building you sub-let out. There's also no change in how you report/claim property taxes or insurance.

Vanessa A

I am assuming you are a single member LLC since you are filing using Schedule C. If this is the case, then yes, you would report the rental income on Schedule E. You would also prorate the rent expense between Schedule E and Schedule C as you have stated, 1/3 to Schedule E and 2/3's to Schedule C.

The other expenses you pay will be allocated the same way.

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