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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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Bought a rental... rented it. decided to tear it down

Customer Question

hi... bought a rental... rented it. decided to tear it down and rebuild with a partner
JA: Thanks. Can you give me any more details about your issue?
Customer: He is managing construction and money is going to him. he will buy the property the end for what i have in it (land, money paid to him for construction) and a profit for me. How do i record (for taxes) the cost that went to him?
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Submitted: 6 months ago.
Category: Tax
Expert:  Lev replied 6 months ago.
If that is a partnership - it is a separate legal entity.If there is a partnership - that partnership MUST file the tax return - form 1065 and should issue K1 forms to each partner.A partnership is the relationship existing between two or more persons/entities who join to carry on a trade or business. Each person/entity contributes money, property, labor or skill, and expects to share in the profits and losses of the business.Partnership should issue schedules K-1 to each partner reporting pro-rata share of net taxable income (or loss) - additional information about partnerships may be found in IRS Publication 541 - - if there are two partners - each will receive K1 form - and will use information from that form to prepare your individual tax return.Questions?
Customer: replied 6 months ago.
it is not a "partnership". We just wrote a written agreement between our two sole LLC's on how the deal/transaction will work. Since we are separate, I am paying him half the costs, and he is paying the contractors... how do i account for the money i paid him?
Expert:  Lev replied 6 months ago.
Indeed - if each LLC runs separate activity - that would be perfectly fine.But because there is an agreement between LLCs - how to contribute funds and properties and how to divide a profit - that is a partnership and each LLC is a partner.You would need to account for all you pay as your contribution into the partnership and the partnership as a separate entity will file the tax return deducting expenses - and will issue K1 to each LLC (partner)
Customer: replied 6 months ago.
Isn't there another way to do it? I don't think the intent was to form a partnership, nor do we want to file taxes as partners.
Customer: replied 6 months ago.
i looked at the K1 form. you have to be set up as partnership. We are not.
Customer: replied 6 months ago.
However, a joint undertaking merely to share expenses is not a partnership.
Customer: replied 6 months ago.
from the irs publication
Expert:  Lev replied 6 months ago.
Another way woudl be if you run the entire activity and hire another LLC as a subcontractor to do the service for you.Then - each will run separate business activities and separately report his/her income and separately calculate the profit.You will issue 1099misc form to report payments you made to another LLC..
Expert:  Lev replied 6 months ago.
Another option is to construct a building that you will own jointly.In this case you may say that will share building costs.In this case all building costs you pay will be your capital investments - you just need to account the these - and total will be your basis in the property you will own...I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.