Late Election Partnership??

[geekgirldany]

I have a new customer that went in with another person buying investment properties in 2007. It is split 50/50. He said they have joint tendency ( I am probably wording that wrong) where both of their names are on the deed. I believe he said they may have sold one property but most of the time they will be renting the properties.

My question is how to file this. Should they go ahead get a Federal ID number now and do a partnership return for 2007? Can that even be done? I know that partnership agreements can be changed before filing the return... if I remember correctly.

Or would it be just as good for them to just do two Schedule Es showing the properties with breakdown of income and expenses?

Thank you for any help

[JoshinNC]

I seem to remember reading

I have a new customer that went in with another person buying investment properties in 2007. It is split 50/50. He said they have joint tendency ( I am probably wording that wrong) where both of their names are on the deed. I believe he said they may have sold one property but most of the time they will be renting the properties.

My question is how to file this. Should they go ahead get a Federal ID number now and do a partnership return for 2007? Can that even be done? I know that partnership agreements can be changed before filing the return... if I remember correctly.

Or would it be just as good for them to just do two Schedule Es showing the properties with breakdown of income and expenses?

Thank you for any help

that 2 co-owners of rental property not in an LLC/partnership must report the income on a Sch. C, not Sch. E, making the earnings subject to SE tax. Forming the partnership may be more beneficial in that it could provide non SE tax income (although it would not be possible to offset other SE income with any subsequent losses).

[Davc]

that 2 co-owners of rental property not in an LLC/partnership must report the income on a Sch. C, not Sch. E, making the earnings subject to SE tax. Forming the partnership may be more beneficial in that it could provide non SE tax income (although it would not be possible to offset other SE income with any subsequent losses).

Where? An activity that would be a schedule E rental for a single individual does not become SE income regardless of the form used or number of people involved.

[JoshinNC]

This was just covered in a CE course

Where? An activity that would be a schedule E rental for a single individual does not become SE income regardless of the form used or number of people involved.

on Tax Talk Today. I will look for a cite and post it.

[joanmcq]

A 'joint venture' rental RE activity doesn't even have to be a partnership. They can just file an E with half the income & expenses. Why do you think all the software has '% of ownership' data requirements? I'm not aware of any recent change in this...

[KBTS]

Tax Talk Program

on Tax Talk Today. I will look for a cite and post it.

I just watched the archive of yesterday's show. I believe you are referring to the new rules that permit a husband/wife joint venture to file 2 Sch. C's instead of filing a partnership return. The IRS representative did state that if it was a rental business and the election was made to file the Schedule C for each spouse, the income would be subject to SE tax. I think there was a follow-up question near the end of the show about this from a viewer and the panel again said the rental income would be subject to SE tax if the election was made to file Sch. C's instead of the 1065.

[Jesse]

I agree with Joanmcq, a joint venture does not have to file a partnership return.

On tax talk today it talked about a husband and wife electing out of a Form 1065 partnership return by filing 2 Schedule C's. I'm not sure where the IRS agent was comming from but he did say that most often Form 1065 is filed for H/W having real estate investments and by filing the Form 1065 they are NOT subject to SE tax. Therefore if they elect to file on their personal returns they canNOT file 2 schedule E's, they must file 2 schedule C's and is IS subject to SE tax.

Someone made a comment that this could be advantageous if they have a loss and other SE income that can be offset by filing the Schedule C's, but it is an irrevocable election (unless granted permission to change). Or a disadvantageous election if they now must pay SE tax on income they would not if they continued to file the 1065.

[JoshinNC]

I've been feverishly looking for a cite

I just watched the archive of yesterday's show. I believe you are referring to the new rules that permit a husband/wife joint venture to file 2 Sch. C's instead of filing a partnership return. The IRS representative did state that if it was a rental business and the election was made to file the Schedule C for each spouse, the income would be subject to SE tax. I think there was a follow-up question near the end of the show about this from a viewer and the panel again said the rental income would be subject to SE tax if the election was made to file Sch. C's instead of the 1065.

and can't find it. Maybe he just got it wrong.

I'll keep looking.

[geekgirldany]

Thank you all for responding. I believe as long as it is a passive activity it is not subject to SE tax. Seems like I have read on the board before that you can do two schedule E's versus a partnership but I wanted to make sure. Customer kept on saying "just do a K-1". It is just stuck in my head joint venture = partnership.

Thank you all again. My brain is already mush People calling like crazy this week.

[Davc]

I just watched the archive of yesterday's show. I believe you are referring to the new rules that permit a husband/wife joint venture to file 2 Sch. C's instead of filing a partnership return. The IRS representative did state that if it was a rental business and the election was made to file the Schedule C for each spouse, the income would be subject to SE tax. I think there was a follow-up question near the end of the show about this from a viewer and the panel again said the rental income would be subject to SE tax if the election was made to file Sch. C's instead of the 1065.

It sounds like they're confusing "rental" and "rental business".

[JoshinNC]

link to transcript from Tax Talk

It sounds like they're confusing "rental" and "rental business".

http://lmpdg.net/ttt/docs/tr0108.pdf

pages 18 and 19 cover the discussion of placing rental real estate on Sch. C and having it cause SE tax. I still can't find where the law or instructions says that though. I'm thinking of sending these folks an email to see what if they can clarify.

[JON]

If it looks and sounds

like a partnership why would you not do a partnership return. The penalties for not filing partnership returns have been increased. It is true that if less than 10 partners and the partners include the activity on their own returns you may avoid the penalty. If it is a partnership file as a partnership. There is no late election I know of in this case...