How do you share depreciation?

Question

Can you share how depreciation works in a Joint Venture? Partner brings caliptal/down payment (passive involvement) and I do the management (active REPS activity). If there is only a JV and not a new LLC formed, what forms are issued at the end of the tax year?

Does the K-1 show depreciation allocated by % ownership? Or does the active partner get 100% depreciation?

Julia Myers · Answer

Thank you for the insight!

Jake Drum · Answer

When you say only a JV and not a new LLC formed do you mean you are both on the title as tenants in common? This would require you to each report your share of the activity (depreciation included) on your individual tax return according to ownership %.

If an entity holds title and you and the other partner own % interests in the entity than you can specify special allocations that are different from ownership % in the partnership agreement/or operating agreement (assuming the entity is taxed as a partnership, and not electing to be taxed as a corporation/s-corp). The special allocations must have "substantial economic effect" (essentially meaning that cash flow to that partner could be impacted somewhere down the line by the allocation) When you start getting into partnership tax law and special allocations it is probably a good time to loop in an attorney and/or tax pro.