What happens when you co-own a rental property with some else? If the title to the property is in two individual names, this is known as tenants in common. In this scenario, the owners must agree upon a profit/loss split. The respective amounts will then be listed on the individual tax returns of the owners. If the title is owned by an LLC or an entity, then there would be a separate business tax return required. Absent the entity, there is no business filing requirement.
For example, let’s say that Jack and Jill co-own a short-term or long-term rental and agree to split the net income 50/50. Throughout the year, Jack and Jill should record all of the transactions for the rental property in a spreadsheet or accounting software. At the end of the year, they will have a profit and loss statement which details the income and expenses of the rental property. Since they have agreed to a 50/50 split, Jack and Jill will each report 50% of the income and 50% of the expenses on Schedule E of their individual tax returns. This can get a bit tricky since depreciation needs to be calculated correctly on each tax return.
If you own rental property together with another investor, it is highly recommended to loop in a CPA that specializes in real estate to make sure both investors are reporting the property correctly on their respective schedule E. My Online Accountant welcomes you to contact us today to discuss how we can help.