Tax benefits between partners

1 Reply

Hello!

My brother and I have invested in a duplex. We closed on the property very recently. Mortgage is under my name and we both are on the title for the property.

Can he claim tax benefits next year?

If not what can we do so that he can as he is equally invested in the property.

Any guidance will be appreciated

Thanks in advance

Hi Kinju!

This sounds like joint tenancy. How does the deed read? Something like, "to Kinju and [brother], as joint tenants"? Or does it indicate "tenants in common"? Just to confirm, you have not written up a partnership agreement or formed an LLC, correct? In other words, the duplex is titled in your individual names, not a separate legal entity?

Either way, you will each report your proportionate share of income and expenses on Schedule E on your form 1040 next year.  You have to split the expenses according to ownership percentage.  If it is joint tenancy, you're 50/50.  So even if you, Kinju, pay all of the expenses on the property, you are limited to deducting half of them on your return, and your brother gets to deduct the other half.  (You also would split the rent income reporting in the same way.)

If you intend to continue investing together, you may want to consider arranging an LLC so that you have more flexibility. There are many traps for the unwary with joint tenancy/tenancy in common arrangements. If you do form an LLC together, it is treated as a partnership by default for tax purposes, and a separate tax return has to be filed annually, called a 1065, which produces K-1s that each of you would report on your 1040. You can potentially quitclaim this duplex into the LLC if the lender does not object.

Ollie B.