Has anyone tried using the relatively new safe harbor for rental real estate under Section 199A? It might not solve the passive activity loss issue directly, but it could provide a qualified business income deduction that offsets some of the S-Corp income.

Another consideration for your grouping election - make sure you're prepared to defend the "appropriate economic unit" determination if the IRS challenges it. The regulations under 469(c)(7)(A) list five factors they consider: similarities and differences in types of business, extent of common control, geographical location, interdependencies between activities, and extent of common ownership. In your case, you have strong arguments for several factors: common control (you own 100% of both), geographical location (same property), and interdependence (the S-Corp depends on the real estate for its operations). The fact that your S-Corp is the primary tenant actually strengthens the interdependence argument. One tip: when you file the grouping statement with your return, be very specific about which factors you're relying on and provide concrete details. Don't just say "common control and geographical location" - explain that you have 100% ownership of both entities and that the S-Corp operates exclusively from the LLC-owned property under a triple-net lease arrangement. Also keep detailed records of your material participation in both activities. The IRS may scrutinize whether you're truly materially participating in the rental activity or if it's just passive ownership.

This is such a helpful thread! I'm dealing with a similar situation where I'm trying to help my elderly parents with their estate planning, and the Form 709 terminology has been driving me crazy. What really clicked for me after reading everyone's explanations is that the IRS basically makes you calculate what the tax WOULD be on all your lifetime gifts, then gives you a credit that's big enough to cover the tax on $13.61M worth of gifts. So you're not actually paying tax until you've used up that credit. It's like they're saying "here's a $5.389M credit in your account that you can use to pay gift taxes" rather than "you get to give away $13.61M tax-free." Same result, but the mechanism is unnecessarily confusing. One follow-up question though - when people talk about the lifetime limit going back down in 2026, does that mean the credit amount changes too, or just how much gift value that credit can cover?

This thread has been incredibly helpful! I'm a tax preparer and I've been struggling to explain this concept to clients for years. The way everyone broke down the relationship between the $13.61M exemption and the $5.389M credit finally gave me the language I needed. What I find most frustrating is that the IRS could easily redesign Form 709 to be clearer. Instead of making people calculate a tax and then apply a credit, they could just have a simple "lifetime exemption used" tracker. But I guess that would make too much sense! One thing I'd add for anyone reading this - make sure you keep copies of ALL your Form 709 filings, even from years ago. The IRS relies on your records to track your cumulative lifetime gifts, and if you can't prove what you've already used, they might not give you credit for previous exemption usage. I've seen situations where people lost track of old 709s and ended up paying tax on gifts that should have been covered by their remaining exemption. Also, don't forget that gifts between spouses who are both US citizens are unlimited and don't count against these limits at all - that's a separate unlimited marital deduction.

Don't forget to consider whether you actually NEED to file a 1065 at all. If you're a foreign partnership with no US source income, no US partners, and no effectively connected income with a US trade or business, you might not even have a filing requirement. The business being registered in Delaware doesn't automatically create a filing requirement if the actual business activities don't have US connections.

Based on your situation with a Delaware LLC and foreign partners, I'd recommend a two-step approach to keep costs down while ensuring accuracy: 1. First, use one of the AI guidance tools like taxr.ai that others mentioned to understand exactly what information you need for the foreign partner K-1s and withholding requirements. This will help you prepare properly before using any filing software. 2. Then use FreeTaxUSA ($60) or TaxHawk ($55) for the actual filing. Both have decent interview processes for partnerships, but having clarity on the foreign partner aspects beforehand will make the process much smoother. Since you're operating at a loss with minimal activity, the return should be relatively straightforward once you understand the foreign partner reporting requirements. The key is making sure you properly identify your foreign partners and handle any required withholding correctly - mistakes here can be costly later. If you get stuck on specific foreign partnership questions during preparation, consider using Claimyr to speak directly with an IRS agent. At $60-70 total for software plus maybe $40-50 for Claimyr if needed, you're still well under what most accountants would charge while getting professional guidance where you need it most.

Another thing to consider is keeping detailed records of ALL your medical expenses throughout the year, even if you don't end up itemizing this year. Medical expenses can be unpredictable, and if you have another major medical event next year, having two years' worth of expenses might push you over the threshold where itemizing makes sense. Also, make sure you're aware of what qualifies as medical expenses beyond just doctor bills and prescriptions. Things like medical equipment, certain home modifications for medical needs, travel to medical appointments (including mileage at 22 cents per mile for 2023), and even some over-the-counter items with a prescription can count toward that 7.5% threshold. Even though it might not help you this year, understanding all the rules now will put you in a better position if you face similar expenses in the future.

One important point that hasn't been mentioned yet - make sure you understand the timing rules for medical expense deductions. You can only deduct medical expenses in the year you actually paid them, not when the service was provided or when you received the bill. So if you're looking at $10,000 in upcoming medical expenses, you might want to strategically time when you pay them. If you're close to the 7.5% AGI threshold this year, it might make sense to bunch as many payments as possible into one tax year to maximize the deduction potential. Also, if you're using payment plans for large medical bills, only the amounts you actually pay in each tax year count toward that year's deduction. This timing strategy can sometimes help push you over the threshold where itemizing becomes worthwhile, especially if you can coordinate it with other itemizable expenses like charitable donations or state tax payments.

Watch out with amended returns and negative AGI situations! I tried to DIY this myself last year and ended up getting a notice from the IRS because I incorrectly tried to carry forward my entire negative AGI (which included FEIE). The IRS ended up disallowing my claimed carryforward and assessing additional tax plus interest. Make sure you're only carrying forward components that actually qualify - like business losses, not just the negative AGI that resulted from exclusions like FEIE.

Just to add another perspective here - I went through something very similar with my 2021 and 2022 returns. Had a negative AGI in 2021 due to a combination of FEIE and some business losses from freelance work that dried up during COVID. The key thing I learned (after initially getting it wrong) is that you really need to break down what specifically created that negative AGI. In my case, about $18k of the negative was from legitimate business losses that could be carried forward as an NOL, but the rest was from the FEIE which doesn't create a carryover opportunity. I ended up having to file Form 1045 to properly calculate the NOL portion and then amended my following year's return to claim it correctly. The business loss carryforward definitely helped offset some of my 2022 income, but it was way less than I initially thought I could carry forward. If you're dealing with multiple components creating the negative AGI like I was, I'd strongly recommend getting professional help or at least double-checking your work before filing the amendments. The IRS doesn't mess around with incorrectly claimed carryforwards.