Limited Divident Housing - Michigan

[Gretel]

It's a limited partnership where the partnership receives a small amount each month and all income and expenses are run through a state agency. State agency pays mortgage and partners don't even know the breakdown of income and expenses.

Receive 1099-Misc. for $3,000 in box 1.

Do they just file a return for the $3,000 income? I would think they need to file a return with everything on it since property is titled in partnerships name.

Help! Anyone out there who has done one of them?

By the way, this goes back to 1992 and no return was filed, ever.

[LawrenceGR]

No 1065's in Michigan

Partnership returns are not required in Michigan. Since everything passes through, the profit or loss just ends up on the Mich 1040. I hope I am understanding your question.

[Gretel]

Thanks so much for responding. I was afraid not getting any response since this is a rather unusual situation.

It a huge relief that not return is required in Michigan but it's also a disappointment since this would have been my next step: to call the State Department.

Then my questions pertain to the 1065 only and I am really confused if they need to file a return including all the income and expenses the State of Michigan is handling or just the $3,000 they received from the state. I will read over all their contracts this weekend.

[LawrenceGR]

Depends on Contracts

I think it depends on how their contracts are drawn up. I have a client (in fact this is the only 1065 I do) that owns a rental and I file a 1065 for that. Last year they also bought a house with the intent of reselling so that went on their 1065, the rental I put on a 8825 within the 1065. This may be a little overkill but I like to cover both my clients and myself. I hope this helps I'm sure there will be others with ideas.

[Gretel]

OK. Read all contracts and talked to several people in Michigan but nobody knows (the trouble I am in).

So, my picture as of now: Client built housing project and leased it to state of MI. Michigan issues 1099-Misc. for $3000. Mortgage is in clients partnership name as is property but MI keeps all rental income and pays mortgage incl. taxes and insurance plus all costs for up keep and has 20-year lease agreement with my client.

I would only report $3000 plus depreciation on house.

Any agreements or disagreements based on these facts? Any other ideas?

[LawrenceGR]

I think I understand a little better but I think this may be beyond me. I have not run in to anything like this before. I do know this if I should every see one of these I will most likely try to contact you. I do wonder if we are trying to make this harder than it is, I am going to keep an eye on this thread because I will be interested in hearing what others have to say. Sorry I couldn't help more.

[Bees Knees]

So, my picture as of now: Client built housing project and leased it to state of MI. Michigan issues 1099-Misc. for $3000. Mortgage is in clients partnership name as is property but MI keeps all rental income and pays mortgage incl. taxes and insurance plus all costs for up keep and has 20-year lease agreement with my client.

I would only report $3000 plus depreciation on house.

Any agreements or disagreements based on these facts? Any other ideas?

I think you are over stressing on this. Just report the net amount on the 1065 since Michigan seems to be collecting all income, paying expenses, and turning over the net amount to the partnership.

If this were a private company doing this for the partnership, the IRS might make the claim you can't do it that way because the private company could conspire with the partnership to defer profits. But I don't see that as an issue when you are dealing with a government agency such as the state of Michigan.

[Gretel]

Thank you so much, Bees. I already thought, if this is all he has in regards to income reporting, then this is all to use. Sure feels good to get confirmation.

You brought up a good point about the difference between contract with private persons and contracts with an State Agency.