I have a 40% ownership in a property. My brother owns 60%. We want fo rent the property. At the end of the year how do we claim the profit/loss between our taxes?

[Mike9241 · Accepted solution]

you probably don't have to file a partnership return 

from 2020 - Form 1065 instructions

 Mere co-ownership of property that is maintained and leased or rented isn't a partnership.

each of you will need to report on schedule E your share of income and expenses including depreciation.  with 40/60 ownership a 40/60 split. 

should you elect to put the property in an LLC and elect partnership taxation, then you will need to file a partnership return.

[Hal_Al]

You each report your share of the income and expenses on your own Schedule E.  

[Carl]

You can establish a partnership if you want, and file a 1065 partnership return each year. Overall, that would probably make things simpler on the "figuring my share" front.

While each of you can also just report your share on SCH E as a part of your personal 1040 tax return, the TurboTax personal editions are not that great at the math on everything, when you own less than 100% of the property. It requires a lot of manual math on your part. Now it's not all that hard for the math. Where you can get tripped up though, is figuring out what the program does split properly, and what it does not split at all. Additionally, each person figuring their share on SCH E can be a bit cumbersome (with TurboTax) when you sell the property, acquire an asset, or dispose of an asset.  Especially if the ownership split is not 50/50.

[Anonymous_]

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@Carl wrote:

You can establish a partnership if you want, and file a 1065 partnership return each year. Overall, that would probably make things simpler on the "figuring my share" front.

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I would highly recommend following the advice of @Hal_Al and @Mike9241; report each owner's share on Schedule E.

Organizing a partnership makes everything more complicated on just about every front, including the added expense of organization and tax preparation; it is totally unnecessary in the scenario set forth.

[Carl]

I guess that depends on what state you're in. I know in FL where I'm at, forming a partnership doesn't require any special paperwork at any level of government. All you need is a written agreement, and that's pretty much it for the most part. Probably has to do with the state not taxing personal income.

[Anonymous_]

Actually, it is a hassle regardless of which state you are in (even in Florida a fictitious name (DBA) may need to be registered).

At a minimum, for federal income tax purposes, the partners need to keep track of their individual basis in the partnership, get an EIN for filing purposes, and file a 1065 each and every year; simply not worth the extra time, paperwork, and expense, in most cases, for one residential rental property.