Short Term Rentals By Miami Beach Residents / Entities and Legal Tax Implications

I have been working with Condominium associations ever since I started practicing as a CPA in Miami Beach. I represented several associations throughout the years. It therefore is no surprise that I fared well within this nitch of business. The city of Miami Beach has been aware of short terms rentals by condo owners and feels it is time to enforce their rights to collect resort tax. This forces owners that rent on a short term basis to get proper licences with the City which includes licencing with the state, charging sales tax and local Dade County tourist tax to short term renters. Several owners have come to me over the past year and one half looking to obtain the license as it is a long and difficult process. The majority of owners own in there own name, meaning the property is deeded in their name and therefore will operate as a short term renter as such. However, often times those that have a corporation or other entity owning the property, come to me and usually there are issues before we can even start. Yesterday a case came before me and I composed an email response to the person. The name of the Entity is removed to respect the privacy of the client.

EMAIL SENT TO CLIENT…
Your accountant stated there was an EIN assigned to the entity, however, it has been presenting its business activity of renting on a Schedule E on your joint Federal, US resident tax return, form 1040.

The entity was disregarded, as the accountant has stated, however, it seems strange that a two member LLC would be considered as such, as it automatically defaults to a Partnership.

I do not know how _____ presented itself originally when it obtained an EIN number, but at some point, it was changed and not reflected on the Articles of Incorporation in Florida. .

The problem now is the discrepancy between the articles of incorporation and how the entity is being treated for tax purposes. These two must be consistent.

Was there a legal document produced that made this change? If this is the case then the correction needs to be made with with the Florida Department of State.

The one page of the schedule E you sent me has no indication of _________ or to the fact that the properties have a relationship to your wife. The single form you sent me has your tax ID number on the schedule and your joint names.

The City is looking for consistency and will not accept less. Please understand that I am not criticizing how this has been handled in the past nor considering how it may effect your overall tax situation moving forward. This is for you and your tax adviser to decide.

From my viewpoint of the tax papers you have presented to me, there needs to be a Quit Claim of the property from _________ to you and your wife to match the tax return. Otherwise, the necessary changes need to be made in the tax returns to present to the City of Miami Beach. There must be a tax return with the name _________ and an independent EIN number as the property is deeded clearly in the name of __________.

Tax prep changes could include filing on Schedule C for the rental activities of ____________, .on your form 1040 and include the EIN number, or file form 1065. Please speak to your tax adviser about those possible changes.

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