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Lev
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Arizona Tax Law Regarding a 1031 Tax Deferred Exchange When

Customer Question

Arizona Tax Law: Regarding a 1031 Tax Deferred Exchange: When rental property is purchased via a 1031, is it acceptable for a group of 3 joint tenants to split the subsequent rental income in uneven increments? For example, may one joint tenant claim 100% of the income (and expenses) while the other two claim 0%? Or it is necessary for the three joint tenants to equally split the income/expenses in thirds?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

The fact that a rental property has been purchased via a 1031 - has no affect on reporting rental income.

 

If there are three joint tenants - those who actually receive rental income should claim it along with rental expenses.

If only one tenant receives rental income - he/she should be only one who claims it on the individual tax return.

If rental income is splitted between tenants - it should be claimed by each tenant.

In this case - tenants are acting as partners - and partnership tax return would be required - use the form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf

Income for each partner (pro-rated according to the agreement between partners - not necessary in equal amounts) should be reported on the schedule K-1 - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

Rental income should be reported in the box 2.

 

Let me know if you need any help.

Customer: replied 5 years ago.
Is the information you provided specific to Arizona tax law? Or is this fed tax law?
Expert:  Lev replied 5 years ago.

Taxable income is determined by the federal law - Title 26 - http://www4.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26.html

Arizona tax laws for income tax is based on the federal tax law with some adjustments - http://www.revenue.state.az.us/FAQS/movingfaqs.htm

 

As you see on Arizona tax return - line 12 - the amount is taking from Federal adjusted gross income (from your federal return) - http://www.revenue.state.az.us/Forms/2008/individual/140.pdf

Additionals and subtractions based on Arizona specifics are reported on lined 13 and 15. There is no different treatment for partnership income reported on the schedule K-1.

So - in your situation - there is no difference between federal and Arizona income tax laws.

 

Arizona has different laws in some tax areas - for instance for property and sales taxes.

Let me know if you need any help.

 

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