Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
I have several properties I did a JV agreement on with someone while we were feeling each other out. We have since formed a joint LLC, and properties we held were moved to it at refinance. The issue is at initial purchase. I used a HML for some and he did for others, only in that person's name. We signed a JV agreement afterwards showing 50/50, but names were not added to title until we changed to the LLC ownership. The issue now is that my accountant says I can't use any of those expenses he has the loan on because I wasn't legally named on mortgage or title. If that is the case I will be missing out on significant tax savings. This doesn't seem correct, as I know there are lots of JVs that seem to have no issues. What are my options and potential workarounds? I don't think I can go back and claim those when we moved the property into the LLC and actually put the unit into service. Appreciate any assistance here because our respective accountants disagree and the partner's taxes were already filed.
There are two different issues at play - the titling and ownership of everything is more of a legal liability issue.
It is possible to still have a tax partnership just with execution of a JV agreement, even if there is no formal LLC in place. Assuming this is proper in your situation, with treatment of a tax partnership, reporting would be as such with a Form 1065 filed, claiming all rental income and expenses, and then issuance of a K-1. You would need to get an EIN for this JV as well and give it a name. As not register with the state, I have seen clients (but you can consult with an attorney on this) go with something like "Alicia and Bob Et Al Joint Venture" as the name for the IRS EIN. Given you aren't clearly a prorata split of everything (IE both names on title, mortgage, etc), Partnership treatment would be much more supportable than as a TIC.
If you have an agreement in your JV that you are sharing the expenses and revenue of the venture, the JV certainly gets to claim those valid expenses, including the mortgage interest.
If the property was never in service and was being renovated, that interest may not have been deductible anyways and it is possible it could have been required to capitalize it into the renovation, in which case you'll recapture it by your share of depreciation.
There are two different issues at play - the titling and ownership of everything is more of a legal liability issue.
It is possible to still have a tax partnership just with execution of a JV agreement, even if there is no formal LLC in place. Assuming this is proper in your situation, with treatment of a tax partnership, reporting would be as such with a Form 1065 filed, claiming all rental income and expenses, and then issuance of a K-1. You would need to get an EIN for this JV as well and give it a name. As not register with the state, I have seen clients (but you can consult with an attorney on this) go with something like "Alicia and Bob Et Al Joint Venture" as the name for the IRS EIN. Given you aren't clearly a prorata split of everything (IE both names on title, mortgage, etc), Partnership treatment would be much more supportable than as a TIC.
If you have an agreement in your JV that you are sharing the expenses and revenue of the venture, the JV certainly gets to claim those valid expenses, including the mortgage interest.
If the property was never in service and was being renovated, that interest may not have been deductible anyways and it is possible it could have been required to capitalize it into the renovation, in which case you'll recapture it by your share of depreciation.
Thank you. We did not get an EIN since the plan was to form a joint LLC at the end of project completion. I appreciate the quick response!