Rental Property Reporting

[Burke]

I have a former client whom I did for about 10 years, then she went to someone else in 2015. She is 1/2 owner of a 2nd home which was treated as rental property since the time it was inherited. I also do the other half-owner who is a family member of this client, and always split everything 50/50. They are now asking that I do the former client's return for 2018, and in reviewing last year's Form 1040 from another preparer, I see this rental property was not reported (and I suspect wasn't for 2016, and 2017 as well.) The other owner has this former client's POA now (done in 2018) due to advancing dementia and has been handling the rental at 100% far as collecting income and paying expenses, as well as taking care of the other party's financial affairs. It always results in a small loss due to depreciation. I continued to report only 50% on the other owner's return as usual during this time. It is my opinion I still need to report 50% on both returns regardless if one owner is receiving all the funds and paying all the expenses. Any comments?

[ATSMAN]

Assuming the tax returns for 2016, 2017 were filed with 100% of rental income and 100% of rental expenses reported by only one owner, pursuant to an agreement between the two owners, I see no problem. It would be a different matter if only 50% of the income was claimed and the other 50% just vanished in thin air!

[Gene V]

Little information from Pub. 527--not sure how I would report it--like ATSMAN said--as long as all income and expenses were reported.

Part interest. If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of owner-ship.

Example. Roger owns a one-half undivided interest in a rental house. Last year he paid $968 for necessary repairs on the property. Roger can deduct $484 (50% × $968) as a rental expense. He is entitled to reimbursement for the remaining half from the co-owner.











Part interest. If you own a part interest in rental property, you must report your part of the rental income from the property

[Burke]

Assuming the tax returns for 2016, 2017 were filed with 100% of rental income and 100% of rental expenses reported by only one owner, pursuant to an agreement between the two owners, I see no problem. It would be a different matter if only 50% of the income was claimed and the other 50% just vanished in thin air!

As I stated in the OP, 50% was reported on the return I did (as usual) and the other 50% was not reported at all. But, I don't think you can trade income around just with an agreement between the two joint owners. See response below.

[Burke]

Little information from Pub. 527--not sure how I would report it--like ATSMAN said--as long as all income and expenses were reported.

[B]Part interest.
If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of owner-ship.
Example. Roger owns a one-half undivided interest in a rental house. Last year he paid $968 for necessary repairs on the property. Roger can deduct $484 (50% × $968) as a rental expense. He is entitled to reimbursement for the remaining half from the co-owner.

If you own a part interest in rental property, you must report your part of the rental income from the property

That's the way I read it too, regardless of what the other party did or did not do.

[TaxGuyBill]

This is NOT my area of expertise, but I think the tricky thing is how the property is titled, and the state laws in regards to the title.

Some forms of ownership may say each person ONLY owns 50% (in which case 50% might be required to be reported on each return). Other forms of ownership could say that BOTH owners have 100% rights of ownership (in which case an owner receiving 100% and paying 100% should report it all on their tax return).

Again, this is not my area of expertise, but that is how I view things.

[Burke]

Property is titled in both names and they are not married so not JTROS. Each owns 50%.

[TAXNJ]

Property is titled in both names and they are not married so not JTROS. Each owns 50%.

Burke - see if The Tax Book page 4-11 second column " Legal Liability to Make Payments"has any info to your scenario - (do not think it would apply to RE tax though)

[sandigi]

It is my opinion I still need to report 50% on both returns regardless if one owner is receiving all the funds and paying all the expenses. Any comments?

I agree. That is how I would handle it. Each owner reports 50% each of the income, expenses, and depreciation.

[Burke]

Burke - see if The Tax Book page 4-11 second column " Legal Liability to Make Payments"has any info to your scenario - (do not think it would apply to RE tax though)

Right. There is no mortgage on this home, but as 50% owners, they are both responsible for the real estate taxes.

[Rapid Robert]

I am firmly in the camp of both owners must report their proportionate share of income/expense from a multi-owner rental activity. To put it all on the return of only one is illegal income shifting, pure and simple. If they want to establish an actual partnership and file Form 1065, maybe they can play around with allocations, but they can't just simply split it any way they want between two Form 1040s. In fact there are some people who insist you MUST file as a partnership in this situation, but I don't go quite that far.

[Burke]

Thank you RR. My sentiments exactly. I could see where there might be funny business on the part of one TP trying to get themselves in a lower tax bracket or qualify for govt benefits by finagling who is going to report what. I consider it income shifting as well to do other than 50/50. They should have formed a partnership years ago when it was decided one would handle it all.