Taxation for Partnerhsip Where Only One Person is on the Loan?

5 Replies

Hello all, 

So far I have only done buy-n-hold rentals in LLC partnerships that were taxed as pass-through entities and I received K1 for my part of things.

A new partner and I are planning on doing a few deals that are NOT LLCs in order take advantage of the longer terms and better rates o f conventional financing. One of use would be bringing the down payments and one would do all of the acquisitions, managing etc.... We are also considering only ONE of us being on the loans, but both of us being on the title to make the best use of our the limits on the number of loans available using conventional financing. 

What we are unclear of is how taxes, depreciation and the like would work in this situation? We would like to be able to split both the yearly 'cash flow' and the long term capital gains '50-50'. Is this possible? Would we need to have a partnership agreement of JV agreement for this?

@Steven Hamilton II or others, whats your thoughts?

Thanks, Dan Dietz

Any thoughts out there? :-)

Dan Dietz

If it is not in an LLC, you can report 50/50 the income and expenses on each person's Schedule E. That said you can do a partnership return and I highly recommend it to track capital accounts.

@Daniel Dietz

My suggestion is to treat it as a property owned 100% by the money person: the one who brings the down payment and whose name is on the loan. The other person is hired as an acquisition agent / property manager etc.  Compensated on a 1099 basis, using any formula you agree on, including 50% of the cash flow.

Thanks for the responses guys.

So if I am understanding things right, my partner can bring the down payment, he can be the one on the loan, but we could still have a formal JV or Partnership agreement between us where we would split things such as interest deductions & depreciation as well as cash flow and long term capital gains '50-50'?

@Michael Plaks , could you explain a little more about your suggestion above? I assume in that scenario only the 'money person' would be on the deed/title if the other one would be a '1099' ? Would there be any issue having a partnership agreement where we also split capital gain on the 'back end' when we sell down the road?

Thanks again, Dan Dietz

@Daniel Dietz

Yes, one person everywhere: loan, title and tax returns. The other is compensated via 1099 in any fashion you agree upon. Agreement - yes, but it would not be a partnership or JV agreement, because he will have no ownership. Don't know what to call this agreement, ask a lawyer.

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