Rental income on property I don't own - how to allocate tax burden

[mrd01]

My father owns a rental property and does not need all the income, and would like split the rental income 50/50.  On his end, he is willing to pay the expenses of property tax and insurance, but he wants to split the federal tax burden appropriately. We are trying to figure out the best way to do this.

Our idea is to get two 1099's, one for each of us, by asking the property management company to pay him for the first six months of the year, and me for the second six months. That way we would each get two 1099's and file taxes accordingly.  The management company sends a clean year-end report summarizing expenses by month so we would just file the expenses incurred in our given six months accordingly. 

The only question I have with this plan is that I have no ownership in the property. Can I claim rental income, as above, even though I don't own the property? Will anything here constitute a flag for audits from the IRS?

[DavidD66]

You cannot report the rental income and expenses on your tax return for a property you don't own.  I suggest your father pay you a fee to manage the property.  He can deduct it, and you can report it and pay tax on that amount.

[mrd01]

Thanks -- but, if that fee was 50% of the rental income (an amount that would get us to the same desired outcome - we each pay tax on half of the income), wouldn't that invite IRS scrutiny as above and beyond what would typically be reasonable for management fees?

[ThomasM125]

You are correct in that the rental fees would have to be ordinary and necessary to be deductible by the landlord. I might suggest that you treat the payments from your father as a gift, which it seems is really what they are. Then, deduct from them the associated taxes he pays by declaring all of the rent income on his taxes to make it fair. He can gift up to $19,000 per year and not have to file a gift tax return. As gifts, neither of you would have to declare the payments on your income tax return.