since there seems to be 50/50 ownership so income and expenses need to be split 50/50. you both have a tax issue because the way you want to report income and expenses lacks economic substance. It would probably result in reallocation or disallowance if audited. Also, possible penalties for failure to file a partnership return.
do consult with a tax pro.
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Lacks economic substance means that a transaction does not have economic substance or lacks a business purpose. The economic substance doctrine is a common law judicial doctrine that disallows tax benefits of a transaction if the transaction lacks economic substance or a business purpose. Applicable case law analyzes two factors in determining whether a transaction lacks economic substance: (1) whether the transaction changes the taxpayer’s objective economic position apart from tax benefits; and (2) whether the taxpayer has a subjective non-tax purpose for entering into the transaction. The Fifth Circuit has held that a transaction must exhibit an objective economic reality, a subjectively genuine business purpose, and some motivation other than tax avoidance, and that the failure to meet any one of these three factors renders the transaction void for tax purposes. However, the Fifth Circuit has also noted that there is a near total overlap between the second and the third factors.
