Partnership payment question

[Jacob Calbillo]

I will hopefully be doing my first multifamily deal soon and am going to partner with someone I trust. He has the cash and I am bringing the deal. When we talked about potential profit splits, he said he could 1099 me and send me my half every month. I am worried about the tax implications of this. How do you typically handle disbursing money in a partnership?

[Basit Siddiqi]

@Jacob Calbillo

Do you and your colleague have a partnership agreement or a loan agreement?
Are you paying your partner a fixed percentage based on his loan amount?
if this is a buy and hold - does your partner receive a share of the rental net income?
if this if a fix and flip - does your partner receive a share of the selling price?

If your agreement is strictly loan based - you technically are not a partnership and you would pay him interest income based on the amount he loaned and the interest rate you agreed upon.
You would issue him a 1099-INT for the interest paid to him during the year.
On the flip side - you would be entitled to a deduction for the interest that you paid him.
This scenario would not require a partnership return(Form 1065)

If the agreement calls for profits to be split; this is a partnership agreement and you would need to prepare a partnership return. Each partner in the partnership would receive a k-1 from the partnership detailing his share of partnership income/losses.
The K-1 would then be reported on their tax return.