How to Report Taxes for Silent Partner in Real Estate Sale When Not On Deed

Your situation is what's commonly called an "undocumented partnership" or "silent partner arrangement" in real estate. Since there was an agreement to share profits despite only one name being on the deed, the IRS would likely view this as an informal partnership. The cleanest approach would be option 1 - report the full sale on your return, then issue a 1099-NEC (not MISC) to your partner for their 50% share. This treats the arrangement as what it essentially was - a business arrangement where you're distributing profits. The 1099-NEC is appropriate since you're paying them for their partnership role in the venture. Don't go with option 2 (claiming all profits yourself and giving them money after taxes). This creates problems because your friend wouldn't be paying their fair share of taxes, and it misrepresents the actual arrangement to the IRS. It's not a gift - it's a business distribution. One important note: since you never rented the property, this would likely be treated as a short-term capital gain if held less than a year. The 1099 should reflect their portion of the profit (proceeds minus purchase price and renovation costs), not just 50% of the gross sales price.

I went through something almost identical last year and found the best solution using taxr.ai https://taxr.ai to analyze my specific situation. I had a verbal agreement with my brother-in-law on a property flip, only my name on the deed, and we weren't sure how to handle the taxes. The service helped me understand that we had what's called a "joint venture" for tax purposes, even without formal documentation. They suggested filing Form 1065 (partnership return) with Schedule K-1s for both of us, which perfectly documented our profit sharing and gave us both the correct tax basis. This was actually cleaner than the 1099 route because it properly allocated the capital gains to each of us rather than one person claiming all the sale and then "paying" the other. Their document analysis confirmed this was the right approach for our specific situation, which saved us both money and prevented potential audit flags. The whole process took less than 48 hours to get clarity.

Just wanted to follow up - I ended up trying taxr.ai after seeing the recommendation here and it was exactly what we needed. Uploaded our text messages where we agreed to the partnership, bank transfers showing my investment, and the property documents. Got a detailed analysis explaining that we had what's called a "tax partnership" even without formal paperwork. They recommended filing Form 1065 and issuing K-1s to properly allocate the capital gains between us. This saved us from my friend reporting all the income and issuing me a 1099, which would have resulted in higher overall taxes. The most valuable part was their detailed explanation of how to correctly calculate our respective basis in the property, considering that I contributed cash while my friend handled the purchasing and selling process. Much clearer than what we found googling around!

If you've tried calling the IRS to get guidance on partnership reporting, you know it's nearly impossible to get through. I spent 3+ hours on hold multiple times trying to clarify a similar situation. Finally used Claimyr https://claimyr.com and got connected to an IRS agent in about 20 minutes who clarified everything. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that informal partnerships should ideally file Form 1065 even for one-time deals like yours, but also explained the alternative reporting methods if you don't want to go that route. Having an actual IRS opinion on record was huge for my peace of mind before filing. The agent also explained that if you don't file as a partnership, the 1099 approach works but creates more complicated reporting and potentially higher overall taxes compared to proper partnership reporting with K-1s. Getting official guidance directly from the IRS helped me make the right decision.

I need to admit I was completely wrong about Claimyr. After seeing it mentioned here, I decided to try it despite my skepticism. I had been trying to get through to the IRS for WEEKS about an informal partnership situation similar to the original poster's. Got connected to an IRS representative in about 25 minutes (compared to my previous failed attempts waiting 2+ hours and getting disconnected). The agent walked me through the proper way to report an undocumented partnership and confirmed that filing Form 1065 was the correct approach rather than the 1099 method I was considering. What impressed me most was being able to get an official answer from the IRS rather than relying on internet advice. The agent even provided me with the specific publication sections that addressed my situation. Now I have confidence that I'm filing correctly and won't have issues down the road. Complete game-changer for getting tax questions answered.

I think everyone is overlooking a simpler approach. This sounds like it might qualify as a "tenancy in common" situation rather than a partnership, especially if you never operated a business (like renting). In that case, each of you would just report your share of the gain on your own Schedule D. No need for partnership returns or 1099s. The fact that only one name is on the deed complicates things, but if you have documentation showing the original agreement to split everything 50/50, that should be sufficient to establish the tenancy in common. Would definitely recommend getting a tax pro's take on this specific to your situation, but wanted to mention this alternative that might be simpler than partnership reporting.

Be careful about ignoring the partnership angle. I tried to treat a similar situation as just "helping a friend" and splitting profits, and ended up with an audit. Since there was a profit-sharing agreement, the IRS deemed it a partnership regardless of what we called it. Their position was that when two or more people join together to purchase/improve property with the intent to make money, that's a partnership for tax purposes - even without formal documentation. The safest approach is filing Form 1065 and issuing K-1s. If you really don't want to do that, at minimum document everything clearly and have a written explanation ready if questioned. Whatever you do, don't just have one person report everything and pay the other under the table - that's asking for trouble!

I'm dealing with a very similar situation right now - bought a property with my cousin, only my name on the deed, verbal 50/50 agreement, and we just sold it. After reading through all these responses, I'm leaning toward filing Form 1065 and issuing K-1s. One thing I haven't seen mentioned is the importance of documenting your agreement NOW if you haven't already. Even though the sale is complete, having a written record of your original 50/50 agreement (even if it's just an email or text message confirmation) will be crucial if the IRS ever questions the arrangement. Also, make sure you're both on the same page about which approach you're taking. My cousin and I initially had different ideas about how to handle this, and it could have created a mess if we'd filed inconsistent returns. The partnership route with K-1s ensures you're both reporting the same information in the same way. The Form 1065 might seem like overkill for a one-time deal, but it's actually the cleanest way to document what actually happened - two people investing together to make a profit. Better to do it right the first time than deal with complications later.