General Partner's K-1 for Rental Real Estate Income with material and active participation $38800. The rental activity is a trade or business (motel). Schedule E shows $38800 as Passive Income. Shouldn't it be Non-Passive?
K-1 Part III Line 14 no amount listed for self-employment earnings. Line 19, A, Cash distributions $14400. Line 20, Z, Sec 199A $7756.
Self-Employment earnings are not flowing to Schedule SE. I've entered $38800, through the worksheet, into SE Line 2..
Is this the proper way to handle this?
Not much sounds right.
If it is a motel business it would be Line 1 income and subject to SE tax and maybe not passive.
Line 2 is for rental real estate. By definition, rental real estate is passive. It is not subject to SE tax. The only exception to it being passive is if your client is a Real Estate Professional.
Rental Activities Not Automatically Treated as Passive Include, Average period of customer use is 7 days or less (motels), Average period of customer use is 30 days or less with significant personal services provided, and 5 other categories. From Reg.1.469-1 T
IRS Instructions for Schedule SE, Other Income and Losses Included in Net Earnings From Self-Employment #3. Payments for the use of rooms or other space when you also provide substantial services.....examples are hotel rooms, etc.
So it is a business activity. I have checked the Rental Real Estate Activity is a trade is business check box. I don't find any way to
I have suggested for future years the person who prepares the 1065 and issues the K-1 should consider designating the Income as Business Income and/or make an entrance on the K-1 Part III, line 14 Self-Employment earnings.
The client should be paying into their Social Security account on this income.
"I have suggested for future years the person who prepares the 1065 and issues the K-1 should consider designating the Income as Business Income and/or make an entrance on the K-1 Part III, line 14 Self-Employment earnings"
Who'd you make that suggestion to? The client or the Preparer?