Father and Son own Son's Apartment

[Bees Knees]

Doesn't there have to be some benefit given to the father in exchange for giving up his share of the rental profits?

When you use special allocation in a partnership, you are basically going outside the ownership interest in the property when allocating income, expenses, credits, etc. Thus, the very nature of a special allocation is to give one partner a greater share of something that he/she otherwise would not be entitled to, while at the same time giving another partner a lesser share of something that he/she otherwise would be entitled to.

Is that fair? Only if the one receiving the greater share of profits is actually receiving that economic benefit and paying tax on it.

What’s in it for the other partner? The capital interest partner is in it for the appreciation of the asset. When the asset is sold, the capital interest partner receives his/her ownership percentage of the sales proceeds. The capital interest partner thus benefits from the economic activity of the partnership that caused the assets of the partnership to increase in value.