Have a meeting with a potential new 1065 tomorrow. Two men (#1 and #2) decide to start a partnership. They both contribute money to build a big garage on the same lot as #1's house. So, am I correct in presuming this garage is the property of #1? No papers were filed anywhere that #2 has an interest in #1's property.
The next question is how to handle the garage on the 1065? If the garage is owned by #1, then no depreciation for the garage is allowed on the 1065. I would think to set this up as the partnership renting from #1, keeping in mind not to price the rent too high because of the self-rent rules -- basically price it to cover depreciation. #1 prefers to not complicate his personal return with Sch E, pg 1 for renting the garage to the partnership. What if he doesn't charge rent to the partnership? If he contends that the area is not exclusively used for the business would he be required to depreciate it anywhere (he says he uses part of the garage for storing other personal effects and would rotate the space if this would help simplify his reporting).
Regardless whether the partnership pays rent or not, wouldn't the partnership be able to deduct utilities and property taxes? The utilities (gas & electric) have separate meters but are billed to #1. #1 could submit copies of the utility bills to the partnership for reimbursement -- no effect on his personal return and yet gets the expense to the business. Ditto with the additional amount of the property taxes.
I would appreciate any guidance in this matter.
Bill
The next question is how to handle the garage on the 1065? If the garage is owned by #1, then no depreciation for the garage is allowed on the 1065. I would think to set this up as the partnership renting from #1, keeping in mind not to price the rent too high because of the self-rent rules -- basically price it to cover depreciation. #1 prefers to not complicate his personal return with Sch E, pg 1 for renting the garage to the partnership. What if he doesn't charge rent to the partnership? If he contends that the area is not exclusively used for the business would he be required to depreciate it anywhere (he says he uses part of the garage for storing other personal effects and would rotate the space if this would help simplify his reporting).
Regardless whether the partnership pays rent or not, wouldn't the partnership be able to deduct utilities and property taxes? The utilities (gas & electric) have separate meters but are billed to #1. #1 could submit copies of the utility bills to the partnership for reimbursement -- no effect on his personal return and yet gets the expense to the business. Ditto with the additional amount of the property taxes.
I would appreciate any guidance in this matter.
Bill
Comment