Tax Treatment: Individual or business entity

Member since 2018 · 72 posts · 25 votes

I purchased one fourplex in CA last year with one partner. Meanwhile, I created one LLC and business bank account to pay property tax, mortgage and day-to-day operating cost.

Per lender's requirement, the title is held by individuals as "tenants in common" rather than LLC. Property tax and Form 1098 is sent to individual and paid using my LLC account.

My question is: Can I use form 1065 to cover all the costs like property tax, mortgage 1098 whose receipt are for individuals?

Would you please share your insights?

Regards, Zhenyang

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Bill HamptonBusiness Member

Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes

@Zhenyang Jin

If your LLC includes you and your business partner, yes you should file a 1065 partnership tax return. The due date for 1065 returns is March 17th this year.

Yes, you can deduct all property related expenses on the 1065 return.

I recommend that you work with an accountant that has experience with real estate taxation and partnership tax returns.

Good luck.

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Bill HamptonBusiness Member
Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
1y
@Zhenyang Jin

If your LLC includes you and your business partner, yes you should file a 1065 partnership tax return. The due date for 1065 returns is March 17th this year.
Yes, you can deduct all property related expenses on the 1065 return.

I recommend that you work with an accountant that has experience with real estate taxation and partnership tax returns.

Good luck.
404-482-3170
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
1y
Who owns the LLC?

I'm not an attorney but to me this offers no benefits. The LLC doesn't actually own the asset and most real estate lawsuits involve the actual property, so I'm unsure that it's providing you protection.

A key point of the LLC offering protection is the separation - so if a name/asset is in your name but the bills/loan re paid from an LLC we don't have that separation. It is by default intermixing.

Also the expenses should be reported to the business activity (the property) they legally are generated from; not necessarily the entity they are paid through.

But your entity doesn't own that rental property; so reporting it on a partnership tax return can potentially create issues as well.
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Zhenyang Jin
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Member since 2018 · 72 posts · 25 votes
1y
Quote from @Bill Hampton:

@Zhenyang Jin

If your LLC includes you and your business partner, yes you should file a 1065 partnership tax return. The due date for 1065 returns is March 17th this year.
Yes, you can deduct all property related expenses on the 1065 return.

I recommend that you work with an accountant that has experience with real estate taxation and partnership tax returns.

Good luck.
Bill, thank you for suggestion.
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Zhenyang Jin
OP
Member since 2018 · 72 posts · 25 votes
1y
Quote from @Natalie Kolodij:

Who owns the LLC?

I'm not an attorney but to me this offers no benefits. The LLC doesn't actually own the asset and most real estate lawsuits involve the actual property, so I'm unsure that it's providing you protection.

A key point of the LLC offering protection is the separation - so if a name/asset is in your name but the bills/loan re paid from an LLC we don't have that separation. It is by default intermixing.

Also the expenses should be reported to the business activity (the property) they legally are generated from; not necessarily the entity they are paid through.

But your entity doesn't own that rental property; so reporting it on a partnership tax return can potentially create issues as well.

Natalie, thank you for suggestion.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
1y
Why would you want to file a partnership return instead of reporting it as is where it is owned as tenants in common.

If you file a partnership return and have someone else do it, you are likely looking at a $700 annual cost.

Reporting it as tenants in common means you report your share of the rental on your individual return and your partner reports his share on his individual return.

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