My brother and I plan to purchase a property and rent it out. Do we need to set up a partnership company and get Ein? or we can do it as two individuals?

[Carl]

This is only a suggestion, or advice, or whatever. This can be done several ways. You can do either way really. But in my *personal* opinion (and we know what opinions are like.) it's much easer to set up a partnership - and you do not necessarily need an EIN - though I would recommend it. Then for the rental it will not be owned by an individual. It will be purchased and owned by "the partnership".
For taxes, a partnership files a 1065 partnership return that has nothing to do with your personal taxes. The "partnership" will issue each partner the appropriate tax documents at tax time, and each partner will use that information to report income/losses on their personal tax returns.
This is just a "brief gist" of what I suggest, and is not all inclusive of everything you need to know so you can make an informed and educated decision on what's best for you. Note one thing I'm not discussing here is weather or not you live in a community property state, which can make a difference if either or both of you are married.  
Both of you should seek legal advice from a lawyer well versed and experienced in partnerships. In my experience when it comes to things like this, when family is involved the only ship that never sails is a partnership. So get legal advice, and get it from more than one *QUALIFIED* source. (This public user to user forum is NOT a qualified source.)
The reason I see most often that family partnerships fail, is because they fail to spell out the terms of the partnerships in a legally binding document. You have to separate your family relationship from the business relationship from the start. If you do not, both of those "ships" will eventually sink. Count on it.

[GP70]

Carl's suggestions are good and on point.  I would suggest that you do get an EIN assigned to the partnership which will keep your personal SSN's out of the documents (loans, credit cards, etc) associated with the rental property.  You can request the EIN on the IRS web site at <a rel="nofollow" target="_blank" href="http://www.IRS.gov">www.IRS.gov</a> and get the EIN assigned right on line.  The IRS will also send you documentation for the EIN.

[Carl]

yes, for a partnership, the EIN is necessary. I wasn't clear on that. It's not needed if reporting on each individual tax return. Just be aware that when you get an EIN, it must be, and can only be, tied to a single SSN which the IRS identifies as the "responsible party".
Overall though, I still suggest you seek advice from a professional in your local jurisdiction. Laws differ state to state, and in some cases locale to locale within a state. These laws can and do impact your taxes and how you report them at the federal level. If you live in a community property state, then it's in your best interest to seek professional advice and specifically ask how living in a community property state can potentially affect things should something unforeseen happen - such as a falling out or the death of one partner.

[Hal_Al · Accepted solution]

I'm of the opinion that you are required to get an EIN and  file a partnership return (form 1065). The partnership does not pay any tax, it is only an information return. Each partner's  income or loss is reported to him on schedule K-1, which he uses to report the income/loss on his individual return.

If, instead, each partner simply reports his share directly on his form 1040, the net effect is the same. Many people do it that way because it's easier or they just don't know it should be done differently

[TaxGuyBill]

I actually think the "proper" way is to report it directly on each individual return, with no Partnership return (unless perhaps the property is purchased in the name of the Partnership or LLC).

"For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants."
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p541/ar02.html#en_US_201601_publink1000104202">https://www.irs.gov/...>


With that being said, I DO think that an official Partnership would encourage them to formally write an agreement between them, which is highly recommended.  It is also more likely to reduce errors by filing one rental return (on Form 1065) rather than two separate returns (each reporting 50% of the rental on their Individual tax returns).

[Carl]

In my experience, based solely on my participation in this forum for the last 10 years, the biggest problem I've seen when filing on individual tax returns, is when doing an unconventional transfer of assets of only one partner. Be it via sale, gifting, inheritance, or divorce in a community property state. It creates a paperwork nightmare for "all" partners when something like that happens.  That's one reason I've never been a fan of partnerships. Multi-member LLC's yes. Partnerships, no.