Joint ownership of rental property – who reports rent?

The IRS is pretty clear that if you own a part interest in a rental property you have to report the income. But do you?  Most people with rental property are using the cash method of accounting, reporting income when they actually receive rent, which triggers the 'constructive receipt' doctrine.

Take the case where a brother buys a property with his sister and deposits rent in to his own bank account that is not shared with anyone. The sister, who owns a 'part-interest' in the property, never constructively receives the rent and therefore does not have to report it.

But what about agency?

If the brother is acting as her 'agent' to receive rent, one would have to look further into IRC Section 1.451-2(a) to see if the funds were somehow credited to the sister's account, set apart for her, or otherwise made available so that she may draw upon it during the taxable year if notice of intention to withdraw had been given. Rent income is not constructively received if her control of its receipt is subject to substantial limitations or restrictions (i.e. sitting in someone else's bank account).

Another example is where a couple buys a property before marriage and one spouse receives all the rent and pays the mortgage (held in both of their names).

There's a whole lot of assumptions here, so you should consult you tax advisor before considering the above- which is not advice.



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