Partnership question

[Questionguy101]

Three persons co-own a rental property. Each owns 33.33%.

(1) Do they have to file a Form 1065 for the rental property as a partnership? Or each of them can just report 33.33% of the rental income and expenses in their individual tax returns?

(2) If they have to/choose to file a Form 1065 for the rental property, do they have to apply for a federal ID number for the partnership before they can file the Form 1065?

Thank you.

[Luis Mopeo]

Three persons co-own a rental property. Each owns 33.33%.

(1) Do they have to file a Form 1065 for the rental property as a partnership? Or each of them can just report 33.33% of the rental income and expenses in their individual tax returns?

(2) If they have to/choose to file a Form 1065 for the rental property, do they have to apply for a federal ID number for the partnership before they can file the Form 1065?

Thank you.

Page 20-2 of TheTaxBook says "Co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants."

[Gretel]

but it is advisable to form a LLC for liability purposes and then they need to file form 1065.

[Joe Btfsplk]

Joint Venture

I haven't seen much tax invormation about Joint Ventures as opposed to partnerships or LLCs, but when I worked in the Oil and Gas business, all of the oil companies were involved in Joint Ventures with each other in the exploration and production end of the business. There was a joint venture agreement which clearly stated that it was NOT a partnership. One company would operate a lease or processing plant, pay all bills and send a billing to the other owners.

In some cases each co-owner would 'take in kind' and sell their share different buyers under different contracts. In other cases the operator would sell it and pay other working interests and royalty owners their share. All of the companies constantly audited each other resulting in large audit claims.

I would think a rental situation could be handled ias joint ventures if the proper contractual arrangements were made.

If no formal contracts are involved they could still split all income and expense. I've done a few tax returns that way.