IRAs or Qualified retirement plans using Rental Business

Submitted by Keith Kim on Mon, 2019-10-14 20:04

Hello all,
I understand that retirement accounts can be opened based on “earned income”.
If someone has business set up for residential rentals with an LLC, is there a possible way to set up a qualified plan?
I was informed that the business owner can pay himself a “management fee” or “guaranteed payment” (owned by husband/wife) which can be then considered earned income.
Is it possible?
Thank you so much!

Keith Kim



Submitted by William Tuttle on Mon, 2019-10-14 21:09

  • There are significant hurdles for real estate rental income to even be considered “active” income. In the vast majority of circumstances it is considered “passive income”. It is an even bigger hurdle for a real estate rental income to be considered engaged in the “business” of real estate. Only then can the income be considered “earned” income eligible for employer retirement plans.
  • Such topics are outside the scope of this forum and are best addressed by a knowledgeable profesional.

Submitted by fairira on Fri, 2019-10-18 05:58

To spinrider,I have been told recently by several presumably knowledgeable sources that a house rental income property purchased and held as an investment for future appreciation, is nevertheless considered by the IRS as being used in a “trade or business” even though the annual taxable rental income from it is $1,500., is less than 1% of the owner’s income as a health services employee, and is passive income since he spends only 10 hours a year dealing with it and filing Schedule E.One source referred to IRS Publication 544 and the middle column of page 26 under “Section 1231 Transactions” which states “Generally, property held for the productioon of rents or royaltis is considered to be used in a trade or business.”  The other source referred to IRC 163(d)(3)(B)(ii) and IRC 469(c)(2) which he said take a rental activity out of the “investment” rules.Furthermore, these sources said that on the rental property’s future sale, he should use IRS Form 4797 (“Sales of Business Property”) to report the amount of unrecaptured gain as well as of course filing Form 8949 and Schedule D (whose woksheet is used to compute the unrecaptured gain).  I am surprised by their comments that the owner is  engaged in a business when I would think a Schedule C would be appropriate but it was not mentioned by them.I would appreciate your comments.

Submitted by fairira on Fri, 2019-10-18 06:06

Sorry that my post’s spaces between sentences and my paragraphing apparently did not “take” and so everything looks like one giant paragraph.

Submitted by William Tuttle on Fri, 2019-10-18 11:11

Last bullet point.

Submitted by Alan - IRA critic on Fri, 2019-10-18 14:36

I cannot add further to this topic, however the issue of formatting for this site has also forced me to use bullet points to get paragraph separation. Have been using Internet Explorer and more recently Edge as browsers. Others can post standard separate paragraphs. Can this be a browser issue?

Submitted by fairira on Sat, 2019-10-19 18:32

I used  Firefox browser for both my 10/17/2019 post with its poor formatting and my 11/30/2108  post which had good formatting and so I wonder if something has changed at this site.

Submitted by fairira on Sat, 2019-10-19 18:47

This is a re-post of my poorly formatted 10/17/2019 post to request spinrider’s or others’ comments about whether the IR considers rental income property to be a business vs an investment.   It should incidentally help me see if using bullet points worked in its formatting• •  To spinrider,•  I have been told recently by several presumably knowledgeable sources that a house rental income property purchased and held as an investment for future appreciation, is nevertheless considered by the IRS as being used in a “trade or business” even though the annual taxable rental income from it is $1,500., is less than 1% of the owner’s income as a health services employee, and is passive income since he spends only 10 hours a year dealing with it and filing Schedule E.•  One source referred to IRS Publication 544 and the middle column of page 26 under “Section 1231 Transactions” which states “Generally, property held for the productioon of rents or royaltis is considered to be used in a trade or business.”  The other source referred to IRC 163(d)(3)(B)(ii) and IRC 469(c)(2) which he said take a rental activity out of the “investment” rules.•  Furthermore, these sources said that on the rental property’s future sale, he should use IRS Form 4797 (“Sales of Business Property”) to report the amount of unrecaptured gain as well as of course filing Form 8949 and Schedule D (whose woksheet is used to compute the unrecaptured gain).   I am surprised by their comments that the owner is  engaged in a business when I would think a Schedule C would be appropriate but it was not mentioned by them.•  I would appreciate your comments.

Add new comment

Log in or register to post comments