Carl - thanks for your response! I just replied to HACKITOFF, which address some of the points that you made.
Completely agree with you that having a partnership without an Operating Agreement, legal entity in place or not, is completely asinine. I'm assuming that what you mean by "establishing a partnership" is having an Operating Agreement in place rather establishing an LP or LLP. Also appreciate that having an LLC in place for real estate: 1) isn't a panacea, and 2) doesn't protect members as much as it is made to seem.
There are two things that I want to bring up related to part of your answer:
- 1065 return: My understanding is that real estate partnerships seem to be exempt from having to file 1065 returns, which decreases a good bit of managerial overhead.
- Sched E: My understanding here is that, yes, all passive (unearned) income is reported on Sched E. The difference between having flow through a multi-member LLC vs not is that with a multi-member LLC the figures go on part 2, whereas with no multi-member LLC the figures go on part 1. I'm drawing a distinction here between solo vs multi-member LLCs since solo LLCs are ignored so don't have to file a 1065 & produce a K-1 and just put in the figures in part 1 of Sched E as if you owned the property without an entity.
Let me know if you have any clarifications on the points above or any other thoughts. Thanks!
