Partner Living in Partnership Property

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  • kdhill
    Junior Member
    • Dec 2018
    • 21

    #16
    There is no partnership agreement.

    Comment

    • Lion
      Senior Member
      • Jun 2005
      • 4698

      #17
      Who is deciding how to split the profits? Loss? Capital?

      Comment

      • kdhill
        Junior Member
        • Dec 2018
        • 21

        #18
        Well, they prepared a P & L and Balance Sheet for me. The equity section of the balance sheet clearly indicates that they're splitting profits & capital three ways.

        Comment

        • Lion
          Senior Member
          • Jun 2005
          • 4698

          #19
          They = all three signed off on the BS? Or, only one? Don't risk getting in the middle of a disagreement or all out fight.

          Comment

          • kdhill
            Junior Member
            • Dec 2018
            • 21

            #20
            Good point.

            Comment

            • Rapid Robert
              Senior Member
              • Oct 2015
              • 1983

              #21
              Since this will be the initial partnership return, I'd advise them that they still have time to set up a written partnership agreement before the return is filed.

              "It was just three brothers that inherited a house from their mother and one brother decided he wanted to live in it."

              I completely understand why the other two brothers might want a more formal arrangement (such as a partnership). Not only does it allow for enhanced accounting related to the annual activity tax returns, but it also formalizes what might happen if/when one partner wants to be bought out by the partnership or sells their interest or leaves it to an heir. Or, if/when the partner-occupant moves out, for any number of reasons (you did mention an S.O., didn't you?) Depending on the value of the property, it might well be advised to consult an attorney. Or, if feeling competent, use an online service like LegalZoom or RocketLawyer.

              It may well be feasible to set it up so the partner-occupant only shares in capital transaction, not profit or loss. Something more or less tax-neutral for that one. To repeat, paying tax on partnership profits, assuming no distributions of property, increases basis in the partnership, which will come in handy for tax purposes some day down the road.

              From a practice management viewpoint, with whom have you engaged? Only the partnership, or the partner-occupant on his individual return, or both? There could be conflict of interest here, so watch for that and give notice or get waivers of same.

              "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
              "That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe Howard

              Comment

              • TaxGuyBill
                Senior Member
                • Oct 2013
                • 2321

                #22
                Originally posted by Rapid Robert
                It may well be feasible to set it up so the partner-occupant only shares in capital transaction, not profit or loss.

                That makes sense. In my opinion, that is what could make this weird situation much more logical.

                Comment

                • Dude
                  Senior Member
                  • Dec 2018
                  • 360

                  #23
                  Is the title of the property in the name of the LLC now?
                  "Dude, you are correct" Rapid Robert

                  Comment

                  • kdhill
                    Junior Member
                    • Dec 2018
                    • 21

                    #24
                    Yes. The property is in the LLC's name.

                    Comment

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