I transferred three homes that I had purchased over the past few years into a partnership 50/50 LLC. I made the transfer in September. The homes are all rented out.

[taxboy]

How do I account for this transfer? Do I just file my taxes with the LLC or do I have to file forms to account for transferring the properties. Before I transferred my partner would pay me half of the expenses so it was a partnership all along. thanks.

[DanielV01 · Accepted solution]

It depends on the facts and circumstances.  In this case, your facts and circumstances indicate that although you made the election official in September, obtaining the LLC and officially transferring the title to the LLC at that point, for tax reporting purposes you have been operating as a partnership (at least with these rental properties) all year.  The most accurate (and simple) way to account for this is to file Form 8825 along with Form 1065 for your Partnership return.

Had you been operating the rental independently up until September this would not be the case.  You would then want to report your individual rental on Schedule E and the partnership rental on Form 8825 (which obviously would be more complicated).  But, since in this case you were sharing in this all along, you would use the Partnership Return.  Here is a link to Form 8825 (Instructions on Page 3).

Please note:  Only TurboTax Home and Business (Desktop Software) is capable of preparing Partnership returns.

[taxboy]

So to be clear I should file the 8825 with the "home and business" and put all the rental home info in that form and skip the form 1040 I used last year? I moved the cash flows from the properties into the LLC in September but I can file as if they were in the LLC all year long?

[DanielV01]

I've been away for two days, but essentially yes, file the partnership forms first.  The partnership is not taxed itself, it basically "distributes" the reportable income to the partners.  That information is reported on Schedule K-1, which, in turn, goes on your personal tax return.

[taxboy]

Thanks. I just realized that we don't technically have a partnership but rather an LLC where my partner owns half. But it is not a partnership in the technical sense of the term. Do I still use the form 8825?

[DanielV01]

It depends.  Here is the IRS website that defines a partnership:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/small-businesses-self-employed/partnerships">https://www.irs.gov/busi... "LLC" is what the IRS calls a "disregarded entity", which means that being an LLC has nothing to do with how you report your income for tax purposes.  Unless the other individual who you are in business with is your spouse (and if that is the case, please feel free to comment back so I can give more information), it seems like your structure is a partnership according to the IRS.  If each of you are keeping separate records, then it is possible that you would file separate schedules C and E, but that actually is much more complicated  than filing a partnership return, which will report to each of you the income you'll report on your personal returns.  The only other option is if you are filing a corporation return (Form 1120 or 1120S).  Just being an LLC does not make your arrangement a corporation.  There are a number of legal steps you must take in order to become a corporation.  Nevertheless, a partnership or a corporation return will use Form 8825.  If you truly do not need either a partnership or a corporation return, you each file your rental income and expenses on Schedule E (on the personal return) based on the individual records you have.  However, based on the information you've given me, a partnership return seems the most appropriate.

[taxboy]

got it. the partner is my brother. and yes this is not a corporation. and yes the structure is like a partnership. we just didn't set it up technically as a Limited Liability Partnership but rather an LLC. (not that we shouldn't have).

so i file the 8825 regardless. do i then issue my brother a form with the 50% of the net gain or loss for the year? is the what the schedule E is?

[DanielV01]

The Partnership return is a Form 1065.  Form 8825 is one of the forms that goes with the partnership return.  It is the "Schedule E" of the partnership return.  The partnership return will, in turn, generate 2 schedules K-1.  This is the form that each of you will use that will report what is necessary for each of your personal returns.  The 50-50 split will have already been made.  Neither of you will have to file an additional Schedule C or Schedule E unless you have other self-employment or rental income that is separate from what you earn together as a partnership.

It is okay legally to have set up an LLC.  I hope you didn't gather from me that doing so was wrong; it's not.  I only meant that having an LLC doesn't mean that you're not a partnership.