How Should Multiple Owners Report Tax on Rental Income for Shared Property?

This is a common situation with family-owned properties, but your current reporting method isn't quite right. Since all three of you are on the deed as owners, the rental income should technically be split among all co-owners based on your ownership percentages (presumably 33.3% each if equal). The correct approach would be filing Form 1065 (Partnership Return) and issuing Schedule K-1s to each brother showing your share of income and expenses. Each of you would then report your portion on your individual returns using Schedule E. Just because one person handles the mortgage doesn't mean they should report 100% of the income. The tax liability follows legal ownership. The mortgage is just one of the expenses of the property. For your plan to split profits in 2025 - yes, each of you would report your distributed portion, but you should still be filing as a partnership with K-1s. For 2021-2024, you might need to file amended returns. The IRS could potentially come back and question why two owners aren't reporting income from a property they legally own. I'd recommend consulting with a tax professional specialized in real estate to get this straightened out properly.

After inheriting a rental property with my cousins last year, I found myself in a similar tax mess. I discovered taxr.ai (https://taxr.ai) which was incredibly helpful for sorting out multi-owner rental property taxes. Their system analyzed our deed, previous tax returns, and rental income statements to show exactly how we should have been reporting. The tool flagged that we needed to file as a partnership and showed what percentage each owner should report based on legal ownership. It also gave us documentation to help minimize penalties when we fixed our previous returns. The property tax section was especially useful for showing how to properly divide deductions among owners.

I tried taxr.ai after posting here and I'm seriously impressed. My brothers and I were in almost the identical situation - 3 owners, only one reporting income. The system immediately identified we should be filing as a partnership and created a retroactive Form 1065 with Schedule K-1s for each of us showing our 33.3% ownership. What really surprised me was how it handled the mortgage situation. Since only one brother is on the mortgage but all three own the property, it properly allocated the interest deduction across all owners while maintaining proper basis calculations. It even created an internal tracking system for the "mortgage responsible" partner's capital contributions. The document it generated explaining our situation to the IRS for the amended returns was incredibly helpful too. Really wish I'd known about this three years ago!

I had a somewhat similar rental property tax issue last year and spent WEEKS trying to get through to the IRS to get clarification. After 20+ calls and hours on hold, I found Claimyr (https://claimyr.com) and was honestly shocked that it actually worked. Their system got me connected to an IRS agent in about 20 minutes who walked me through the partnership filing requirements for co-owned rentals. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically it navigates the IRS phone system for you and calls you back when an agent is ready. The IRS agent I spoke with confirmed that co-owned rentals need to file as partnerships in most cases and explained the process for amending previous years' returns.

I'm actually stunned. After completely doubting Claimyr would work, I tried it this morning and spoke with an IRS representative within 30 minutes. I've been trying for MONTHS to get clarification on partnership filing requirements for my family's rental property. The agent confirmed that properties with multiple owners on the deed should generally file Form 1065 partnership returns with Schedule K-1s distributed to each owner, regardless of who handles the mortgage. She explained that we don't need to form a legal business entity - the co-ownership itself is considered a partnership for tax purposes. She also advised that voluntarily correcting prior years through amended returns would likely qualify for reduced penalties under their voluntary disclosure practices. Definitely worth the time I saved not sitting on hold for days!

One thing to consider is setting up an actual LLC for your rental property. My siblings and I co-own two rentals and we created an LLC taxed as a partnership. This gives liability protection plus makes the tax situation crystal clear. Each member gets a K-1 reflecting their ownership percentage. The operating agreement clearly defines who's responsible for what and how profits are distributed. We do 33.3% splits on everything. Our mortgage is in the LLC's name now (we refinanced), which is even cleaner for accounting purposes.

Be careful with amending returns! My family tried correcting a similar situation and it triggered an audit. Make sure you have excellent documentation about when you acquired the property and how ownership is split. If you've been keeping all profits in a shared account, that actually helps show you weren't trying to evade taxes - just filing incorrectly.

Based on everyone's advice here, I'd strongly recommend getting this sorted out sooner rather than later. Your current approach of having one brother report 100% of the income while all three of you are legal owners is definitely problematic from a tax perspective. Since you're planning to start distributing profits in 2025 anyway, this is the perfect time to restructure everything properly. Here's what I'd suggest: 1. Work with a tax professional to file Form 1065 partnership returns for 2021-2024 and issue corrected K-1s showing each brother's 33.3% share 2. Have each brother file amended personal returns (Form 1040X) to report their proper share on Schedule E 3. Starting in 2025, continue filing as a partnership with proper K-1 distributions The fact that you've kept all the money in a shared account and only used it for property expenses actually works in your favor - it shows you weren't trying to hide income, just filing incorrectly. Document everything about your ownership structure, the inheritance, and how you've been managing the property. Don't let fear of penalties keep you from fixing this. The IRS is generally more lenient when taxpayers voluntarily correct mistakes, especially when the total income was still being reported (just by the wrong people). The longer you wait, the more complicated it becomes.

I went through almost exactly this situation two years ago with my sister when we inherited a duplex. We made the same mistake - I was reporting 100% of the rental income even though we were both on the deed as equal owners. Here's what actually happened when we fixed it: My sister ended up owing some back taxes since she hadn't been reporting her 50% share, but I got refunds for the years I had been overpaying. The net effect across both of us was roughly balanced, though there were some differences due to our different tax brackets. The key thing our CPA emphasized was timing. We filed all the amended returns simultaneously - both my corrections showing reduced income and her corrections showing the previously unreported income. This helped demonstrate to the IRS that we were correcting an honest mistake rather than trying to game the system. Regarding the LLC question - our tax professional recommended getting compliant first with the partnership approach, then considering the LLC later. The partnership filing (Form 1065 + K-1s) gets you legally compliant immediately without the complexity of forming a new entity. You can always convert to an LLC structure later once everything is straightened out. One practical tip: Make sure you have clear records of all property expenses for the years you're amending. Since you've been keeping everything in that shared account, you should have good documentation, but organize it by tax year before meeting with your tax professional. It'll save you time and money.

I'm dealing with a very similar situation right now! My brother and I co-own a rental property that we inherited, but only he's been reporting the income. After reading through all these responses, I'm convinced we need to get this fixed ASAP. The point about the IRS treating co-owned rental properties as partnerships by default is something I didn't know. I always thought you had to formally register a partnership, but apparently just owning property together for profit automatically creates one for tax purposes. I'm particularly interested in the experiences shared about amended returns. It sounds like as long as you're proactive about fixing it and can show the total income was being reported (just incorrectly), the IRS is generally reasonable. The strategy of filing all amendments simultaneously to show it's a correction rather than tax avoidance makes perfect sense. One thing I'm still unclear on - when you file as a partnership with Form 1065, does the property itself need an EIN (Employer Identification Number)? Or can you file the partnership return using one of the owner's SSNs? This might be a basic question, but I want to make sure I understand all the steps involved before I start this process.