We own a 2 unit home with other tenants in common. We reside in one unit and the other unit is rented (to non-owners). Do all tenant in common co-owners need to declare income on the rental unit proportionate to their ownership interest? Or can an agreement be made amongst co-owners as to who declares income for a unit? i.e. can co-owners A & B declare (if any) income from "unit 1", and co-owners C & D declare (if any) income from "unit 2"? Would the IRS hour such agreement amongst tenants in common?
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Income from the rental unit is claimed in proportion to each owner's ownership interest.
But is this a Partnership, C Corp, S Corp, etc?
Income from the rental unit is claimed in proportion to each owner's ownership interest.
But is this a Partnership, C Corp, S Corp, etc?
@Carl - Thanks for that response. Interesting, I’m actually in a similar situation. I was told that you cannot file a partnership return unless the partnership entity has an ownership stake in the property. If the home is owned by the individual TICs, and the mortgage interest is issued to their individual Social Security numbers and not the EIN number of the partnership, you can’t file a partnership return. Is this correct?
I was told that you cannot file a partnership return unless the partnership entity has an ownership stake in the property.
You were told wrong. A partnership is a disregarded entity. Assets of the partnership are either capital contributions from at least one member of the partnership, or are purchased by the partnership after the partnership is established. (Do not confuse this with a multi-member LLC, which is also a disregarded entity for tax purpsoes.)
Getting an EIN for a partnership is a no-brainer and absolutely free to at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...
Just be aware that when applying for an EIN, the EIN number is tied directly to the SSN of a living, breathing human being. So in your case I would recommend you tie it to the SSN of the partner that has the most in the partnership.That person will also be the "responsible party" to the IRS for the partnership.
Understand that since a partnership is basically nothing more than a pass-through entity, the partnership itself doesn't pay taxes per-se. If any taxes are paid out of partnership funds, they are paid towards the tax liability of the partners - usually in equal shares proportionate to their percentage of ownership in the partnership.
But when each partnership reports the K-1 on their individual ax returns, any taxes due are paid by the partner on the personal return side. Likewise, any refund due is paid to the partner that has it coming to them, based on what's reported on their individual K-1.
@Carl Tenancies-in-common (TICs) aren’t automatically classified as partnerships. The number of co-tenants needed for a co-tenancy to risk being classified as a de facto partnership is 35 co-tenants. See section 6 (page 9) of this IRS rev. procedure: https://www.irs.gov/pub/irs-drop/rp-02-22.pdf.
To answer the question posed by @given-2-fly, if you want the TIC to be considered a TIC and not a partnership, you need proportionately share income and debt and meet other requirements listed in the linked rev. proc. If you fail to meet all the requirements under section 6 of the IRS rev. procedure, then you risk be classified as a partnership. Again, a TIC isn’t a de facto partnership (business entity). If someone wanted a rental income split amongst co-tenants that’s not proportional to each co-tenant’s ownership interests, than they’d likely want to form a business entity.
Disclaimer: this post is general information related to public documents published by the IRS. This post doesn’t create an attorney-client relationship and doesn’t constitute legal advice. You should talk to a tax attorney or professional for specific tax guidance.
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