Partnership W/o The Partnership Aggrement
with a partner we decide ot go 50/50 on profits of the retail sale of a house nedding rehab. the hml loan goes in my name and the sale goes in my name. . if the total profit is 50k then it would be a 25k split each however since it is in my name i wouldbe subject to taxes for the full 50k. How then can I structure it that I only pay for my share of the net profit.
When I partner with somone I have their profit listied on the HUD so that the title company writes them a check for their profit from the proceeds and then the remaining profit is my proceeds check. This way is very clean as you only get a check for your profit.
You could always just give your partner a 1099 for his share of the profit.
Bump !!!!!
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I thought I would repost this topic , because I still have not gotten an answer for this.
We have closed on the property now, Re-hab is almost complete, and we plan to close with our buyer in about a month , so I still need to know how we should do our profits which will be 50/50 , that we pay our equal share of the taxes on the profits.
I am the money partner , and my partner is the credit partner, and mortgage and deed is in his name.
Thanks for any help or suggestions.
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No answer? I thought Brenda and NewKid both gave an excellent repsonse on this.
One was to simply show the profit distribution on the HUD-1, and the other was to just issue a 1099. Beyond that, ask your CPA what would be most appropriate for your situation.
Quote:
On 2006-07-14 09:29, rbjj wrote:
I thought I would repost this topic , because I still have not gotten an answer for this.
[ Edited by mcole on Date 07/14/2006 ]
Thanks McCole for your reply.
I guess they did answer my question, I just needed clarification on how to add someone on the hud1 , or if the 1099 would be better.
Thanks
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rbjj,
You’re welcome.
And I agree jam200 -- without a signed agreement it’s awfully risky. Even if you trust your partner completely, having it in writing is that "neutral third-party" you need should any misunderstandings occur.
But if it were me, I think I would want to get paid directly out of escrow – which would show up on the HUD-1 settlement statement. And there’s a couple of way to do it that I can think of.
One is to just put it in your escrow instruction to have the net seller proceeds distributed 50% to you and 50% to your partner.
Another way is to create a bill from you to your partner for an amount equal to 50%, and have the invoice paid through escrow.
Or, you could even just have escrow deposit your portion of the money directly into a specified bank account.
But again, I would also talk to your CPA to see if the distribution should be in your name, a business name, which account, etc. It all depends on how you’re set up.
Thank you All for your replies.
I may have piggybacked on the wrong subject topic because we do have a written partnership agreement that covers who gets what, who pays what, what each partner is expected to do ( ie: sweat equity ), what happens if one partner becomes unable to perform or dies , how profits will be split, and that all cost including holding cost will be paid to the money partner who pays them off the top. We both signed it, and had the agreement notorized
In the agreement It is stated that the money partner would be issued a 1099 for tax purpose, which I picked up from Newkid.
I just wanted to make sure this was the best way to handle the tax situation. I will make an appointment with my CPA to get his take on it also.
I really appreciate all your replies, and I would not have known about the 1099 or the Hud 1 without learning about it on this site.
Thanks !
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Hey Mcole ,
My agreement is just a homemade one that I wrote up from different agreements I found on the net.
I took parts that applied to our situation , and things I could think of that applied , and made a pretty good agreement.
I will be glad to post it if someone really wants it.
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The limited liability company has two (2) members, which are you and your wife.
The question is whether or not the LLC is considered to be a "disregarded entity" by the IRS. A "disregarded entity" is usually a single member LLC.
This LLC will be considered to be a "disregarded entity" by the IRS if you reside in a community property state. The husband and wife are technically a two (2) member LLC, but in community property states a husband and wife are treated by the IRS as one - or a single member LLC - which would be a disregarded entity.
An LLC that is considered to be a "disregarded entity" is completely ignored by the IRS and should not file a separate income tax return.
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Quote:Do you guys file a separate return for each LLC?
A single member LLC -- a disregarded entity -- does not file a tax return. The member, instead, reports all his activity on his personal tax return.
The LLC treated as a partnership pays no taxes in its own right, but does file an informational return (Form 1065) with the IRS and also issues each member-partner a Schedule K-1.
The LLC treated as an S-Corp also pays no taxes in its own right, but does file an informational return (Form 1120S) with the IRS and also issues each member a Schedule K-1. Each member reports his share of the LLC income on his own personal 1040.
The LLC treated as a C-Corp does pay taxes in its own right and file Form 1120 with the IRS.
Depending upon how each of your LLCs are treated for tax purposes determines whether a tax return is required from each one.
NewKid, do you know the rules for LLC filing for the state of Florida? I have the exact situation LLC setup with two members (wife and I). One property so far that is in our personal names. I have plans for the LLC but have not moved forward with Quit Claims etc.
Last year an accountant did the taxes and did a separate return for both the LLC and personal taxes. This method cost me a fair amount of money and I am thinking of trying to tackle it on my own this year. I want to get it back to just one return. I still feel my accountant over charged (over $1000.00) and did not need to do separate returns, maybe I am wrong, have been many times in the past Any info on how FL laws and the IRS laws for this scenario would be appreciated.
Thx in advance...
Ok here are the facts (well most of them). I am new to land lording, investing, real estate etc. I have a “normal 8-5” job. Wife does too. We bought a commercial property and decided it would be a good idea to start a business with this being the first property held by it for rental income and equity building. (Big dreams of collecting several more in 1-10 years).
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We created a LLC with 50/50 partnership she is the CEO I believe, I am the Operation manager or something like that, typical 50/50 split down the middle. The meeting minutes and org chart is not near me. We setup a business checking account for day to day ops and an escrow account in the LLC’s name for the account name. My personal name and wife name can write checks, and deposits to it. That may have been a bad move because we did nothing with the LLC, no quit claim to LLC holding, no activity what so ever. Still trying to figure out why I would even want to keep the LLC because I would still be personally liable even if I could get the Property into the name of the LLC so it appears I would have no more protection than without an LLC. The three tiered system I read about may be too involved for me to do at the moment.
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So far I am simply working solely with the 5plex I have and do not plan on acquiring more rentals in the next 6 months. Tax time for 2005…..I go to the accountant; he says bring me everything related to the business and personal expenses etc. He gave back two returns to file, one was personal and had a little amount coming back and the other was zeroed out it seems (LLC company return). I remember him saying something like it is all one entity or something..something …pass through. Sadly, I renewed the LLC license (why?, I still do not know,…yet). I am thinking of changing the name on the Business account back to my personal to avoid further confusion and hope to just have one return but yet I still have this LLC which is just nothing more than a name requiring some renewal fees and has no activity.
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Not the best business plan I must admit but hey I am doing well in the actual land lording just my financial org needs help. My goal is to do my own taxes this year, maybe with Turbo tax if possible. Any thoughts on how I should approach the filing taxes this year?
Thx in advance.
PS Sorry to jump into this thread smithj2 with my own questions, maybe the responses will help others.
[ Edited by Waylon on Date 07/14/2006 ]
Why? By your own statement, you have no earned income, so you are not a dealer to real estate. Instead you are an investor.
You already get the benefits of RE appreciation by holding property and tax deferred profits with a 1031 exchange for the occasional sale.
No need for an IRA, is there? Or, did I misinterpret your situation?
And also if done through an LLC (unless the LLC elects to be taxed as a corporation).
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