Has anyone used Rev. Proc. 96-10 for a partnership division? My understanding is it provides a safe harbor for certain types of partnership splits.

One thing that hasn't been mentioned yet is the importance of timing your division carefully. The IRS looks at the entire series of transactions, not just individual steps, when evaluating disguised sales under Section 707(a)(2)(B). Since you mentioned the real estate has significant appreciation, you'll want to be particularly careful about how debt allocations are handled. If any partner receives a reduction in their share of partnership debt as part of the division, that could be treated as a deemed cash distribution and trigger disguised sale treatment. Also, make sure to document the business purpose for the split thoroughly. The IRS is more likely to respect the transaction if you can show legitimate business reasons (like different investment strategies, geographic focus, or management philosophies) rather than just tax avoidance motives. Given the $875K value involved, I'd strongly recommend getting a second opinion from a tax professional who specializes in partnership taxation before proceeding. The potential tax consequences of getting this wrong could be substantial.

Something nobody's mentioned yet - if your partner is claiming both kids, they're probably also getting all the child tax credits. You might want to consider alternating which parent claims which child each year to make things more fair financially, especially if you're paying more of the household expenses.

I think everyone is missing something important here - if you're living together in the same house with your partner and kids, only ONE of you can claim Head of Household. The IRS won't allow two HOH filers for the same household. So if you're all under the same roof, you need to decide which one of you will claim HOH.

I've been doing short-term rentals for 3 years and I split mine between schedules. If guests stay less than 7 days and I provide substantial services, I use Schedule C. For guests staying longer than 7 days with minimal services, I use Schedule E. My tax guy said it's perfectly fine to split them up based on the nature of each rental period. Hope that helps!

This is such a helpful thread! I'm in a similar situation with my vacation rental and have been stressing about this exact question. Based on what everyone's shared, it sounds like the key factors are the length of stay (under 7 days) and the level of services provided. From what I'm reading, if you're providing linens, toiletries, welcome baskets, and doing the cleaning yourself between guests, that definitely sounds like "substantial services" which would push you toward Schedule C. The fact that you're actively managing bookings and have 75% occupancy also suggests this is more of an active business than passive rental income. One thing I hadn't considered before reading this thread is the potential QBI deduction benefit with Schedule C - that 20% deduction could be significant! Though the self-employment tax is definitely something to factor in too. Thanks to everyone who shared their experiences and resources. This community is so helpful for navigating these tricky tax situations!

Little tip from someone who's been a trustee for years - if you're making distributions "in case" as your CPA suggested, make sure to document the INTENT of the distribution clearly. Write down why you're doing it, who authorized it, and what trust provision you're following. I've found keeping a trustee journal with all these details saves tons of headaches later, especially if you're ever questioned by beneficiaries or (god forbid) end up in court. Courts give trustees wide latitude if they can show they were acting in good faith with proper documentation.

As someone who's dealt with trust administration myself, I'd strongly recommend getting clarity from your CPA before making any moves tomorrow. The phrase "just in case" is concerning - there should be a specific tax or legal reason for this distribution. A few thoughts based on your situation: 1. **Never use your personal account** - this creates unnecessary risk and potential for claims of self-dealing. If the subtrust accounts are already set up, distribute directly to those. If not, even a basic trustee checking account would be better than commingling with personal funds. 2. **Understand the "why" first** - Your CPA might be thinking about income tax distribution requirements under the 645 election, but you need to know exactly what they're trying to accomplish. Different types of income may have different distribution requirements. 3. **Document everything** - Whatever you decide, make sure you have clear records of the amounts, the trust provisions you're relying on, and the purpose of the distribution. If you can't get clarity from your CPA before tomorrow, consider whether this can wait until you have proper guidance. Trust administration mistakes are much harder to fix after the fact than they are to prevent upfront.

lmao good luck. I've been trying to get my refund sorted for months. At this point, I'm convinced the IRS is just a black hole where our tax returns go to die 💀

I feel your frustration! I went through the same thing last month. One thing that helped me was using the IRS callback feature - instead of waiting on hold, you can request a callback and they'll call you back when an agent is available. Also, try calling right at 7 AM when they open or around 1-2 PM when call volumes tend to be lower. The trick is persistence - it took me about 5 tries but I eventually got through. Don't give up!