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Updated about 1 year ago on . Most recent reply presented by

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7
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2
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John Fairchild
  • Buckley, WA
2
Votes |
7
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Kansas City earnings tax?

John Fairchild
  • Buckley, WA
Posted

If I have a LLC and use a property management company for my rentals am I subject to the 1% earnings tax? Or is that considered a "hands off" activity and not taxable? Thanks!

Most Popular Reply

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187
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98
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Milton Chamberlain
  • Real Estate Agent
  • Kansas City, MO
98
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187
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Milton Chamberlain
  • Real Estate Agent
  • Kansas City, MO
Replied

My Dad is a CPA, so I hit him up on your behalf. Here is his 2 cents:

"If you manage the properties yourself, then yes, it is subject to KC income tax. If you have a management company, then my next question would be how much do you spend dealing with the properties? If not much time at all, then no, the rental income is not subject to KC income tax.
The IRS defines active participation in an activity of 250 hours or more a year, material participation as 750 hours or more. Rental income is by definition passive, so it is subject to passive activity loss (PAL) rules. I'd say if they spend under 250 hours per year on the properties then no they don't need to pay KC income tax on it. (250 hours is quite a bit if you think about it.)
The other thing you might look to to answer this question is how you are treating the income on your federal tax returns. If you are treating the rental income as subject to the net investment income tax (NIIT) on your federal return then it is definitely NOT subject to KC income tax.
If they are treating the rental income as a qualified trade or business for purposes of the qualified business income deduction (QBID) on your federal return then it definitely IS subject to the KC income tax."

Here's KC's FAQ's on the subject:

https://www.kcmo.gov/city-hall...

Let me know if I can be of any further help!

  • Milton Chamberlain
  • [email protected]
  • 573-356-1607
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