For a partnership renting a property which is owned by the members (not the partnership) did we have "Partner Contributions" or not? Do i file basically a blank 1065?

[kealohaproperty]

I'm a general partner of a partnership formed this year (2018) and trying to complete a 1065 for the first time. Although the partnership was formed this year, we bought the property together 2016 and own the property as tenants in common. However, this is the first year we have placed it into service (rented it). The partnership outlines the percentages owned of the property and the profits / losses (among other things). Each member owns a certain percent of the property and has been paying for all fix-up costs in their percents, and we expect to receive contributions at those same percents. However, we did not transfer the property over to the LLP. Almost all of the financial contributions happened before we registered the partnership, (although we did back-date the partnership agreement to the point of property purchase.) Because of a backlog of startup costs, this year ran in the red and there were no distributions. Money came in from the rental but most of it was used on the property for repair. (It needed a lot of repair.) Some of that money is left in the bank, set aside to use for final repairs to the rental property. My understanding is that if we had not formed an LLP this year, all co-owners of this rental would be putting their property income on their schedule E, but since we have an LLP i need to file the 1065 (in two days, yikes!) first. So, did we have "Partner Contributions" or not? Can i put depreciation and the other costs into the 1065 as if the property was owned by it, or do i basically a blank 1065? (And just inform all the partners what data to use on their schedule Es?)

My confusion is twofold: 

1) what goes in a schedule 1065 if the property is not owned by the LLP and instead owned by the partners?

2) what counts as a contribution? The money that came in as rent and went into the repairs? (or is that a distribution?) the leftover money in the bank? (To complicate matters: what about the things i paid for out of pocket but haven't been reimbursed for yet? We are accrual basis.) Even though this tax year is a loss? I understand that the money we put into the property to purchase, and the money we put in to repair it (as long as it is not deducted as a rental expense or another way) go towards each of the partners' cost basis in the property. So when the property is running in the green, can we take distributions that come against our cost basis? (For instance, would we first take out the rental losses, and then apply any rental incomes as reducing our cost basis?) I get the feeling we would report the rental incomes above loss as yearly income and not a distribution but i don't know why. Although my first priority is just to get the 1065 properly filed by march 15th, I'm just starting to understand the idea of Cost Basis and i would love help understanding where income (and losses) intersect with it. At first i thought they were two separate matters, and that the cost basis was mostly just important to keep track of, for when we sell the property, but now it seems they are more connected than i expected because of possible distributions.

Until two days ago i didn't know that partnerships have to file a month early. (I was confused since i knew they were a pass-through entity.) Ha ha ha uh oh...  I have been staying up all night trying to quickly TurboTax my 1065 form by the 15th, and i'm really glad i found out this week instead of next week! Any help clarifying before the 15th would be much appreciated!

[Rick19744]

Your question(s) and facts are not consistent.
1) You indicate that the member's own the property outside of the partnership.  Why are you asking about contributions?
2) I think you are making this more complicated than it is.  Not sure why you have an LLP?
3) Just file an extension for the LLP

[bluefeatherhomes]

Thank you for your response! You're right- i should file an extension, but i would still like to get the taxes done quickly for the sake of giving my partners enough time to file their taxes without extensions. The partnership's stated purpose is for the purpose of renting, managing, and owning the property (although we failed to transfer ownership). We wanted to formally specify the percentage ownerships, what happens if somebody dies or wants to sell, etc, rather than having it be a verbal agreement.

We have a registered partnership with an FEIN, so- we must file a 1065. TurboTax asks me what the owner contributions have been. Well, we have had a lot of contributions over the last 2 years to the property  to pay for property costs, startup costs etc. Some of them were in 2018.

So: What goes on the 1065? The income and costs of the rental, but not the depreciation or real estate taxes since that comes from the building? The income and costs from the rental with depreciation and real estate taxes included? Completely blank and all activity so far is considered outside the partnership, since the partnership doesn't own the land?

[Rick19744 · Accepted solution]

Here are my comments:

1. The partnership agreement or document is not the legal method of dictating what happens to property that it does not own.  You need seek legal counsel on this matter to have this handled appropriately.
2. The LLP will only report income and expenses attributable to the trade or business of the LLP.  Based on the facts, that does not include any rental income since the LLP does not own the property.  Nor would it include any depreciation for property is does not own.  What would be included would be any management fees it charges to "rent" the property or manage the property.
3. You have not accomplished what I imagine the goal was: to avoid including the property rental information on Schedule E.  Since the property is not in the LLP, that will still need to be split between the parties and each will put that information on their respective Schedule E.
4. You should seek some professional tax and legal advice on this matter.  You can easily transfer the property to the LLP.  From a compliance standpoint this will make everything cleaner.  While in general the contribution of property makes the form 1065 complicated, since the same parties own both the LLP and the property, those complexities will be minimized.
5. The other issue that needs to be determined is if the LLP has really started its trade or business in 2018?
6. There are a number of issues that need to be talked through and this forum is not really the best formal to accomplish that.  If the LLP has not started its trade or business in 2018, then a form 1065 is not required to be filed.