Discussion:Partner use of Partnership Rental Property
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Discussion Forum Index --> Advanced Tax Questions --> Partner use of Partnership Rental Property
Discussion Forum Index --> Tax Questions --> Partner use of Partnership Rental Property
| 19 October 2007 | |
| A parternship with two partners owns a rental property. The property has three units. One of the units is used by one of the partners as his personal residence and he is not paying any rent to the partnership.
I believe the deductions would be limited to the income earned from the rental units under Section 280A. Has anyone ever run into a situation like this? How did you treat the income and expenses on the partnership return? I can allocate the direct rental expenses to the two other units and then allocate the mortgage and property taxes based on the square footage of the units in relation to the whole property. I'm trying to find any case law or regulations that would relate to partnerships and apartment buildings, but no luck so far. | |
| 19 October 2007 | |
| Gee: If the partnership minutes noted that the partner stayed in the unit for the convenience of the partnership to provide 24 on-site management, you could make the argument that the value of the rent received is not income to the partner. | |
| 19 October 2007 | |
| if the partner using the property have to recongnize the rental income then all the deductions should be allowed. | |
| 19 October 2007 | |
| Where can I find information on the partner having to recognize income for the personal use of the unit? I will check the 700 code sections to review the partnership rules?
Would this be like a guaranteed payment? How much would he recognize, the full value of the unit or just his % interest in the unit? | |
TheTinCook (talk|edits) said: | 20 October 2007 |
| Is this the sole activity of the partnership? Because if it is, Making an election under Reg. 1.761-2 might be beneficial to the partner living in the property.
"If the partnership minutes noted that the partner stayed in the unit for the convenience of the partnership to provide 24 on-site management, you could make the argument that the value of the rent received is not income to the partner." I can't quite wrap my head around this Larry. It sounds a lot like a payment for services (providing housing in exchange for 24 hr management of the property) which would of course be a gaurenteed payment for services under Sec 707(c), hence income to the partner. I don't think you can apply Sec 119 here because the partner is not an employee of the partnership. "Would this be like a guaranteed payment? How much would he recognize, the full value of the unit or just his % interest in the unit?" It would be the FMV of the rent plus what ever else the partnership pays for that a renter normally would i.e. utilities, insurance, etc. | |
| 20 October 2007 | |
| See Prop Reg ยง 1.280A-1(e)(5)(ii). I agree personal use by any partner would be considered to be personal use for purposes of Sec. 280A. | |
| 22 October 2007 | |
| Thanks for the info.
I just do not think it falls into the realm of guaranteed payments. It is an investment partnership and the partner living there is not the one managing the property. He just has not other place to go. I think I can allocate the rental expenses to the unit used for personal purposes. Apply the section 280A rules at the partnership level, meaning they are dissallowed on the Form 1065 since no income was generated to offset the allowable expenses. Then on the partner's personal returns deduct the interest and property taxes on Schedule A. I don't think I have imputed income. Suppose they owned it as tenants in common. The IRS would not make you imput income if you let your brother/co-owner stay at a rental property you owned together rent free for two months. Basically, the IRS would only allowed the expenses that you could deduct against the income generated. | |
