Rental Income

[Guest John P.]

Any input is greatly appreciated. We know that rental income is passive income and, as it is, does not constitute self-employment income.

However, question is this. If a person has established a business to serve as property manager, consultant, etc. with proceeds from rental income being paid to the business for their work, could this then be considered actual income? This is, of course, with the understanding that the person is actually working in this business capacity.

If potentially considered income, then the individual could certainly use proceeds from such as contributions to a retirement plan (e.g., 401K)? Thanks

[ETA Consulting LLC]

Are you paying FICA on the income?

[PensionPro]

Any input is greatly appreciated. We know that rental income is passive income and, as it is, does not constitute self-employment income.

However, question is this. If a person has established a business to serve as property manager, consultant, etc. with proceeds from rental income being paid to the business for their work, could this then be considered actual income? This is, of course, with the understanding that the person is actually working in this business capacity.

If potentially considered income, then the individual could certainly use proceeds from such as contributions to a retirement plan (e.g., 401K)? Thanks

It is possible in some instances, but not sure if it works in your case. If you are a real estate dealer, rent received in the course of your trade or business is included in self-employment income. You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Rents received from the use of or occupancy of hotels, boarding houses, or apartment houses are included in self-employment income IF you provide services to the occupants. Services are considered provided to the occupants if the services are for the convenience of the occupants and are not services normally provided with the rental of rooms or space for occupancy only. Maid service, for example, is a service provided for the convenience of occupants, while heat and light, cleaning of stairways, and the collection of trash are not.

[masteff]

The question is whether the person qualifies to report on Schedule C, rather than the normal Schedule E. This is a very difficult hurdle to leap.

See Chapter 3 of IRS Pub 527 regarding "substantial services". See Chapter 5 of IRS Pub 334 regarding "real estate dealer".

If they were really serious about it then I'd suggest they consult w/ a competent professional tax advisor to determine if they could qualify to report on Schedule C.