Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?

hativered — Mon, 24 Nov 2025 10:10:36 GMT

Four individuals (all immediate family) share ownership of rental property as tenants in common. Ownership interest is as follows:

Person A: 50%
Person B: 16.67% (actual is 1/6th)
Person C: 16.67% (actual is 1/6th)
Person D: 16.67% (actual is 1/6th)

Person B manages the rental property and receives all rents, pays all expenses, and distributes profits according to ownership interest. Each individual files Schedule E, where income, expenses ,and depreciation are commensurate with ownership interest. It's been done this way for about ten years.

Going forward, the individuals, collectively, wish to know if it's allowable:

1. For person A, the person with the most disposable income, and who is in the strongest financial/economical position, to pay for all rental expenses that are ordinarily deductible on Schedule E (not to exceed rental income received); and

2. To reapportion rental income allocation in a way such that those individuals (A and D) with higher disposable incomes and with stronger financial/economic position take less in order to help those others (B and C) with lower disposable incomes and weaker financial/economic positions, as follows:

Person A: 38% (down from 50%)
Person B: 29% (up from ~16.7%)
Person C: 29% (up from ~16.7%)
Person D: 4% (down from ~16.7%)

Depreciation claimed on existing assets would not change.

I'm guessing the shift in who pays and claims the expenses might be allowable, while the second part, about shifting rental income received, likely isn't?

Looking forward to your answers!

Re: Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?

M-MTax — Mon, 24 Nov 2025 18:10:17 GMT

You can basically treat the income and expenses as all of the owners agree and see fit.

However, I'd urge caution on varying this arrangement from tax year to tax year based solely on taxable income of each owner since such an arrangement would lack economic substance (i.e., it would have no purpose other than tax avoidance).

Re: Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?

hativered — Sat, 29 Nov 2025 05:54:56 GMT

Thank you for your reply. And can this be achieved while still filing individual Schedule Es? Or does it become a partnership for tax purposes, requiring filing Form 1065?

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Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?

Re: Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?

Re: Co-Owners (Tenants in Common) Splitting Rental Income/Expenses (Schedule E) Not According to Ownership Interest?