Do I need to file partnership return?

Forum|Forum|4 years ago
March 29, 2022
2 replies
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Hi Turbotax community,

I have a question on whether to file a return for general partnership formed between wife and husband. Here is our situation. We bought a property in late 2021 and spent some money to furnish and improve the property out of own personal bank account. Around the same time, we also formed a general partnership and got EIN in late 2021. We didn't list our airbnb until Feb. 2022 and only then it started to generate income (2022). All airbnb income go through partnership EIN.

My questions is whether we need to file a partnership return for the year of 2021 since we didn't generate any income & we would like to claim the expenses as our passive loss. Can we claim the loss through our personal tax return and carry forward the passive losses? Can we then offset the passive loss against passive 2022 income from the partnership when we file the 2022 partnership tax return, since partnership is a pass-through entity?

Thank you very much!

Mike9241

Level 15

money spent to furnish and improve the property would not be deductible or depreciable until 2022.since it would seem you have no reportable income or deductions for 2021 a partnership return is not required.

now a warning about tax filing for AIRBNB

If you provided "substantial services" to your renters, then you're considered to have had an "active" role in earning Airbnb income. That active role indicates you should be classifying your Airbnb activity as a business subject to self-employment tax on net income and would not be passive.

CarolineLAuthor

Level 2

Thanks Mike. Can I deduct expenses from 2021 on 2022 tax return? Is this only referring to start up costs (computers, equipment, home improvement, furniture, etc.) that needs to be capitalized and depreciated over time? How about other expenses I incurred to get ready for airbnb in 2021 e.g. auto/travel, repair, cleaning, and supplies (bed linens, paper towels etc)?

LeonardS

Level 14

As @Mike9241 pointed out "If you provided "substantial services" to your renters, then you're considered to have had an "active" role in earning Airbnb income." in that case you would need to file Schedule C Profit or Loss from Business.

The IRS has a provision for a Qualified Joint Venture (QJV). "A qualified joint venture is a joint venture that conducts a trade or business where (1) the only members of the joint venture are a married couple who file a joint return, (2) both spouses materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership. You may want to consider this as an option rather than filing as a partnership. Ref: https://Election for Married Couples Unincorporated Businesses.

If you need to file a Schedule C due to your active participation and if you use the QJV option you will simplify your tax filing as you do not need to file a partnership return

@CarolineL

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CarolineLAuthor

Level 2

Thanks Leonard. Looks like I am not qualified for "substantial service" in 2021 since I didn't list my airbnb until Feb. 2022 (no service was provided to guest etc). In this case, what should I file in order to claim the expense I incurred in 2021 (bed linens, furniture etc)?

Thanks!

ErnieS0

Level 15

It depends. What type of EIN did you apply for on your application. Did you say you were a sole proprietorship or partnership?

In general, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

If you filed as a sole proprietorship and intend to report your 2022 income and expenses as self-employed (Schedule C) then you can file as self-employed in 2021, include your EIN number and deduct expenses.

As @Mike9241 said, it doesn't appear that you have any deductible expenses in 2021 since you were not in business.

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