Tax Year Prior to 2020: If I co-own a rental property but am NOT on the mortgage, can I NOT claim any rental income?

[streampaw]

If there's just me and one other person co-owning a rental property... the other person gains all the income from it and pays the mortgage and all the expenses... is it ok if I don't claim any rental income on my taxes even if I have my name on the deed? How do I make it so that this is ok to do? Any paperwork I need to file? What about things like depreciation, can I not claim any of that so that the other person deducts everything?

[VictorW9]

Is there any specific reason why you are not claiming your share of the rental? In effect, the tax burden is now on the other person claiming the rental. I hope at some point you have the issue clarified with the other person because if you were to sell the property now any gain or loss would be claimed by the other person alone, unless you have some kind of agreement with the co-owner in the event of that happening. 

The simple way is to set up a Partnership Limited Liability Company (LLC ) for the rental, so you can claim your own share and avoid any issues in the future.

[Anonymous]

you are not in a good position.  we really don't know the intent of you and the other person but it needs to be clarified in writing.     on sale who would get the proceeds?      could the iRS claim you owned part of the property and should have picked a portion of the income and expenses including depreciation every year.    when it's sold do you need to report the gain and pick up as 1250 deprecition recapture (can be taxed at higher rates that capital gain )  the depreciation you should have taken on yor return but didn't.

first i would talk to your partner about how things were to be shared.   you may need to see a lawyer to resolve this mess. 

[streampaw]

I don't want to have any rental income on my tax return. Will the IRS force me to claim rental income because I'm on the deed? Or can I not claim it?

[VictorW9]

As long as the full rental income is being declared by your co-owner, I don't believe the IRS will make an assessment to you for taxes due. Your partner is assuming the whole tax burden and theoretically can be the one to incur the taxes or claim any tax advantages of owning the property.

The thing you need to resolve will be the legal implications of you effectively giving up your rights to the property by some kind of implied consent. Just make sure you have this resolved with a lawyer so you know exactly what this means. 

[streampaw]

Do we need some kind of official document from a lawyer? Can't I just put it in writing or something? 

The IRS won't come after me for not reporting any rental income from this property, as long as my partner reports it, right?

[ThomasM125]

Technically, if you own rental property with anyone but your spouse, you have a partnership by default so you should file a partnership tax return. There are severe penalties for not filing a partnership tax return, so you need to keep that in mind.

Once you file the partnership tax return, you can split up the income and expenses using whatever percentages you decide on between the partners. So, your friend could continue to report most of the income and expenses if that is what you agree on.

As a practical matter, if you aren't receiving any money from the venture, you will probably not be in any trouble as far as your personal tax return is concerned. The main problem is the penalty for not filing a partnership tax return ($195 per partner, per month.)

[streampaw]

I have another question. If I get put on the deed of the property, does the other property owner have to file a "gift tax" return? Because he is essentially giving me half the interest in the property? The property would be under a mortgage though. 

And if I'm letting him take all the rental income from the property even though I'm also on the deed, do I have to file a gift tax return? Would it count as me "gifting" him my portion of the rental income? I don't want the rental income to hit my tax return at all...

[Carl]

You need to seek legal advice from a lawyer well versed in real estate as well as the tax consequences of your situation. You need to seek that advice yesterday, if not sooner too. Especially if your state taxes personal income. You are in a precarious position that may have the potential to financially devastate you not just to the poor house, but to the curb.

For all you know,the other owner may be claiming only half the income and half the depreication. But if the other owner isn't telling you that and you're not reporting your half of things, you will find yourself in one fine legal mess in the year the property is sold or otherwise disposed of.

One thing I don't understand is why one would want to be on the title to the property, when they're not on the mortgage. If it were my name and my name only on the mortgage, what do you have to gain by putting you (or anyone else for that matter) on the title to the property? I can't even begin to count the number of legal issues that could create for me as the only one obligated to pay the mortgage.

[streampaw]

I am not asking about the legal issues and I don't want to go into detail explaining my life. I'm just asking about what happens with our taxes if we do this.