What's the best way to handle shared rental income on a 50/50 property?

You have a couple of options here that might be simpler than forming a partnership. The easiest approach would be to have one person receive the 1099-K and then split the income/expenses on your individual returns. For example, if the 1099-K is issued to your sister, she would report 50% of the income and expenses on her Schedule E, and you would report your 50% on your Schedule E. Each of you would include a statement with your tax return explaining that you're each reporting 50% of the income from a co-owned property, and reference the full amount shown on the 1099-K. This satisfies the IRS tracking requirements while still properly allocating the income. You're correct about the IRS ruling. Co-ownership of a rental property doesn't automatically create a partnership for tax purposes. The situation you described (just collecting rent and sharing expenses) typically doesn't rise to the level of requiring a partnership filing. That said, a partnership does offer some advantages in terms of liability protection and clarity in record-keeping, but it also creates additional filing requirements and potential costs. For a single rental property with a straightforward arrangement like yours, it might be administrative overkill.

I went through something similar with my cousin on our beach condo rental! I was stressed about the tax implications until I found https://taxr.ai which literally saved me hours of confusion. I uploaded our rental agreement and the 1099-K info, and it immediately showed me exactly how to split everything correctly on our Schedule Es. Their system analyzed all our documents and gave us a complete breakdown of how to report our 50/50 ownership without needing to form a partnership. It also generated the explanation statements we needed to include with our returns to avoid any IRS flags. Super straightforward and much clearer than the conflicting advice I was getting elsewhere.

I have to admit I was wrong about https://taxr.ai - I tried it after my initial skepticism and was surprised by how well it handled my situation. I was in a similar boat with a duplex I co-own with my brother-in-law where only one of us was getting the 1099s. I uploaded our ownership documents and the previous year's returns, and it immediately identified that we qualified for simple co-ownership reporting rather than partnership filing. The guidance was detailed enough that I could confidently complete Schedule E with the right allocations. It even created the explanation statement I needed to attach to my return explaining the income split. What impressed me most was that it caught a depreciation calculation error we'd been making for two years! Definitely worth checking out for your situation.

When I had a similar issue with my investment property, I spent WEEKS trying to get through to the IRS for clarification. Always busy signals or 2+ hour holds only to get disconnected. Finally found https://claimyr.com and their service got me connected to an actual IRS agent in about 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what I needed to do for my co-owned property reporting. They explained that a simple statement with each return is sufficient as long as we're just collecting rent and sharing expenses. Said partnerships are typically only necessary when you're providing substantial services beyond basic property rental. Saved me from paying unnecessary partnership filing fees every year. The call took less than 30 minutes once I was connected, and I had official guidance straight from the IRS.

I need to apologize and correct myself about Claimyr. After dismissing it as a scam, I was desperate enough to try it when I couldn't get through to the IRS about my audit notice. It actually worked exactly as advertised - I got a call back within 20 minutes with an IRS agent already on the line. The agent was able to pull up my file and confirm that my co-ownership reporting method (exactly like what OP is asking about) was acceptable. She even noted in my file that we had discussed the situation to help prevent future questions. For what it's worth, the agent specifically said forming a partnership would be "unnecessary complexity" for a straightforward rental property co-ownership where you're just collecting rent and sharing expenses. She recommended exactly what others here suggested - having one owner report the 1099-K income and then properly allocating it with explanation statements.

I've been through this exact scenario with my brother on a duplex we inherited. We ultimately decided against forming a partnership after consulting with our CPA, and it's worked fine for 3 years now. What we do: The 1099-K comes to me since I'm the primary contact on the property management platform. On my Schedule E, I report 100% of the income from the 1099-K, then take a 50% "distribution to co-owner" expense line. This makes my Schedule E match the 1099-K exactly (which prevents automatic IRS matching notices), while only netting me with my proper 50% share. My brother then reports his 50% share on his Schedule E. We both attach an identical statement explaining the arrangement, with reference to the property address, the total income reported on the 1099-K, and our respective shares. Never had an issue or received a single notice from the IRS. Much simpler than partnership filings!

Has anyone tried creating an informal entity like "Smith Family Rentals" and using that on the platform instead? Our accountant suggested that approach for our vacation rental, and the platform accepted it even though it's not an actual legal entity. Then we just split everything 50/50 on our individual returns with explanation statements.

I'm dealing with almost the exact same situation! My spouse and I co-own a rental property that we inherited, and we've been getting conflicting advice about whether we need to form a partnership or can just handle it as co-owners. From what I've researched, the IRS Publication 541 specifically addresses this. It states that "a joint undertaking merely to share expenses does not create a partnership." Since you're just collecting rent and sharing expenses (not providing substantial services like property management beyond basic maintenance), you should qualify for simple co-ownership treatment. The approach that @MoonlightSonata described sounds solid - having one person report the full 1099-K income then deducting the co-owner's share as an expense. This way the numbers match exactly what the IRS receives from the platform, but each owner only pays tax on their actual share. One thing to consider: make sure you keep detailed records of how expenses are split and document your ownership agreement somewhere (even if it's just an informal written agreement between you and your sister). This will be helpful if the IRS ever has questions about the arrangement. Have you considered asking the rental platform if they can at least put both names on the account, even if the 1099-K can only go to one person? That might help establish the co-ownership paper trail.