Title and Ownership of Residential Property

[Forensicacctnt]

A client (husband and wife) are partners in a business that owns residential real estate for rent. They purchased a home in November, 2019 but the property was titled in the couple's names not the business. The client is now asking can this property be recorded as an asset by the partnership? If not then do they have to have the property re-titled in the name of the partnership? If that has to occur then the property would be as asset purchase in 2020 when it's re-titled or in 2019? The partnership is taxed as a partnership. Thank you.

[Burke]

If this is their personal residence, then it is not a partnership asset for the business. If it was a home purchased for rental purposes, then yes, it should be retitled in the partnership's name.

[Rapid Robert]

I wonder if this partnership is an LLC. (may not change answer, but it seems this would fit the scenario). This may involve insurance and mortgage interest considerations, as owner-occupied residences (if that is how the purchase was transacted) are usually treated differently than rental property.

I don't think it would be treated as an asset purchase in 2020 when it is retitled. It would be a contribution of property by the partners. You would have to track basis to the partnership at FMV, outside basis for the partners, and if unequal amounts, there are some adjustments needed to depreciation and the like that I remember having to do once and not enjoying. (TheTaxBook has an example of these adjustments in the partnership tab).

[Burke]

A residence can be retitled and owned by a Family Limited Partnership. Is that what this is? I would not combine rental and personal real estate into one entity, due to liability issues. What is the rationale here?

[Forensicacctnt]

For additional information, this purchase was not their personal residence but is to be rented. There was no mortgage on the purchase. They will have it titled in the business name in 2020. The business is an LLC with husband and wife 50/50 partners and taxed as a partnership.

[Burke]

If it were me, I would set up a separate LLC for each property for liability purposes. What if they get sued by one tenant? At least, its confined to one entity. Have them check with their insurance company on their treatment.

[Forensicacctnt]

Thanks for all responses! Very helpful, especially the suggestion about each property having it's own LLC. I will pass this on to the owners to review with their insurance company.