co owned rental property

[ChEAr$]

My client and his sister inherited mother's house which is located way out there in western Texas. Sister is the one on the ground and actually taking care of renting it out, but client says that only she will get the 1099 for the rental income.

First reaction was to detail the income and expenses, divide by half and each report on own tax returns. But then how would sister handle 100% of rentals reported on 1099?

1. Report 100% on her return income and expenses then take an "other" deduction for one half net before that deduction? (sending necessary information to brother of course.)

2. Report only half of everything with a paper filed return and statement explaining?

3. other?

I dont' recall ever having the situation before. Certainly co ownership of rental property does not a partnership make.

[Gretel]

My client and his sister inherited mother's house which is located way out there in western Texas. Sister is the one on the ground and actually taking care of renting it out, but client says that only she will get the 1099 for the rental income.

First reaction was to detail the income and expenses, divide by half and each report on own tax returns. But then how would sister handle 100% of rentals reported on 1099?

1. Report 100% on her return income and expenses then take an "other" deduction for one half net before that deduction? (sending necessary information to brother of course.)

2. Report only half of everything with a paper filed return and statement explaining?

3. other?

I dont' recall ever having the situation before. Certainly co ownership of rental property does not a partnership make.

Who gets actually the funds? Is net split 50/50 even though sister is doing all the work?

[ChEAr$]

Who gets actually the funds? Is net split 50/50 even though sister is doing all the work?

Yep. Net cash flow is split.

[luke]

harlan

The Sch E now has a box for QJV (qualified joint venture) which seems to be what this is ?- WITH a 1099 to one, I would want to show THAT rental amount and then do a "nominee" dist to other person involved (I split all the expenses in half (even Depr) and show on each ScheduleE

[ChEAr$]

The Sch E now has a box for QJV (qualified joint venture) which seems to be what this is ?- WITH a 1099 to one, I would want to show THAT rental amount and then do a "nominee" dist to other person involved (I split all the expenses in half (even Depr) and show on each ScheduleE

thanks, luke. I'll check that out.

[KathMorgan]

Rental

I'm pretty sure the QJV clause is only for spouses, but would have to double check. If one sister gets all the income reported on the 1099 she should do a 1099 for the other sister for half the income, then split the expenses down the middle as well. You can easily split the depreciation by halfing the basis. But a paper trail is especially important for the sister that gets the main 1099.

[taxea]

Doesn't this belong on a partnership return. Then the K-1 can reflect the proper percentage to each.

[Gretel]

I'm pretty sure the QJV clause is only for spouses, but would have to double check. If one sister gets all the income reported on the 1099 she should do a 1099 for the other sister for half the income, then split the expenses down the middle as well. You can easily split the depreciation by halfing the basis. But a paper trail is especially important for the sister that gets the main 1099.

I agree with this approach. They have the option to create a partnership (than they should make it a LLC for liability purposes) and have rent income reported in EIN for partnership. But if limited liability is not desired it costs too much extra money.

[Gary2]

Doesn't this belong on a partnership return. Then the K-1 can reflect the proper percentage to each.

Mere co-ownership of rental property with shared expenses does not create a partnership. Treating it as a partnership creates all sorts of complications that are best avoided in most cases.

[JG EA]

In the past we did one Schedule E, took out 50% on the bottom line, put the others persons SS# as belonging to the the other 50% right on the E. I plan to do this with another return. I don't see why it won't be fine to do it this way. (The party doing the bookkeeping sends the E to the other party.)

[Gary2]

I agree with this approach. They have the option to create a partnership (than they should make it a LLC for liability purposes) and have rent income reported in EIN for partnership. But if limited liability is not desired it costs too much extra money.

Alternatively, put each share into a separate LLC, to avoid the appearance of a partnership. Obviously this depends on the LLC costs and benefits. I'd guess that it also depends on whether the property is titled as tenants in common or joint tenants.

[Burke]

Yep. Net cash flow is split.

I do one of these every year. Two sisters own (inherited) deceased mother's house and rent it out. Half of everything goes on each's 1040 (I do both returns), including rents, expenses, depreciation, etc. Software calculates based on ownership percentage. It's not enough cash flow left over to split, they keep excess in account for repairs & maintenance.

[taxea]

Mere co-ownership of rental property with shared expenses does not create a partnership. Treating it as a partnership creates all sorts of complications that are best avoided in most cases.

Then, for documentation purposes, might I suggest that an agreement, in writing, specifying how the income and expenses will be divided is in order?

[luke]

kath

I'm pretty sure the QJV clause is only for spouses, but would have to double check. If one sister gets all the income reported on the 1099 she should do a 1099 for the other sister for half the income, then split the expenses down the middle as well. You can easily split the depreciation by halfing the basis. But a paper trail is especially important for the sister that gets the main 1099.

I stand corrected - had 2 brothers with similar rental situation - should NOT have checked QJV box....