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Excluding Gain on Sale of Property in 1065

tccpg289
Level 4

2 partners owned a property together and lived there together for several years (brothers).

Partner A moved out prior to Partner B. Partner A does not meet the exclusion requirements.

Partner B does meet the exclusion requirements as he lived there 2 of the last 5 years.

Currently, the property is in a 1065 owned by A and B.

Where on the 1040 is the gain entered given that the property is currently under the 1065? 

How do I enter in ProSeries to ensure it flows correctly?

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24 Comments 24
abctax55
Level 15

Does a partnership 'get' to use the exclusion? I don't think so... 

** IRonMaN ** is FREE 🙂
tccpg289
Level 4

No but it will flow through to the individual.

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BobKamman
Level 15

Sounds like the same question from earlier this week, from someone whose mind was already made up based on the most insignificant authority, a PLR from a couple decades ago.  And was the property already sold?  By the partnership?  Same thing I said last time, transfer it out to the partners before sale.  

tccpg289
Level 4

It has not yet been sold - can you confirm how to transfer? Where would it all get entered in ProSeries?

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BobKamman
Level 15

State law might apply so ask locally.  I would deed it from "A&B Partnership" to "A, a 50% interest" and "B, a 50% interest."  Is the partnership engaged in any business or own other real estate as rentals?  I would not guarantee to the clients that IRS would agree with use of the Section 121 exclusion, and advise them that IRS once said it was OK but then changed its mind in one particular situation.   

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abctax55
Level 15

@BobKamman 

And wait two years or not? I'm curious 😊

** IRonMaN ** is FREE 🙂
sjrcpa
Level 15

Is it really owned by a Partnership?

Or is it owned by Person  Brother A and  Person Brother B?

The more I know, the more I don't know.
BobKamman
Level 15

@abctax55   In the best of all possible worlds, they would wait two years.  But with real estate values declining, I assume they want to sell now and worry about taxes later.  

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TaxPrep1
Level 2

If they used to live in the property, there is no need to file 1065 since it’s not an investment, if one of the partners used it as an investment, then he should have filed it on his 1040 Sch E with 50% ownership and when they sell it he will file it as selling a business property and no exclusion applies, and the brother who is living there can file selling as main home and calculate his gain only.

I 1065 was already filed last year as an investment for both, then I would file it again to calculate the investment profit and loss, issue final K-1s, then do the selling on each 1040 as I mentioned above.

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sjrcpa
Level 15

Who legally owns it?

Schedule E is probably not appropriate for a "rental" between co-owner family members.

The more I know, the more I don't know.
BobKamman
Level 15

I am not finding where these partners are brothers.

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sjrcpa
Level 15

Neither am I. Don't know where I conjured that up. 🙂

The more I know, the more I don't know.
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qbteachmt
Level 15

The first sentence has "brothers." You're both fine.

The partnership is not a person that has a primary residence. The people don't own the residence personally, apparently. They don't get to treat it as a partnership asset when it is convenient, but then try to claim it is personal just because that is convenient for a different reason.

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sjrcpa
Level 15

Bob and I should read more closely. 😀

The more I know, the more I don't know.
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sjrcpa
Level 15

I asked about legal ownership because many times we have seen real estate reported on a partnership/LLC return when it was owned individually. Conversely, frequently we see people say joint ownership of property makes it a partnership.

OP hasn't answered the question.

The more I know, the more I don't know.
tccpg289
Level 4

It is owned jointly by the brothers, thus a multi-member LLC.

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tccpg289
Level 4

It is owned jointly by the brothers.

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tccpg289
Level 4

It is being sold this year, under contract now, neither brother lives there at the moment, but one of the brothers has lived there 2 of the previous 5 years.

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TaxGuyBill
Level 15

@tccpg289 wrote:

It is owned jointly by the brothers, thus a multi-member LLC.


 

If the home is owned by a multi-member LLC, it is not really jointly owned by the brothers.  BIG difference.

tccpg289
Level 4

Got it - thanks for the clarification.

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sjrcpa
Level 15

Then WTH was reported on a 1065?

Each brother should report their portion of the sale on their 1040. Sounds like 1 brother is eligible for the 121 exclusion and one is not.

The more I know, the more I don't know.
TaxGuyBill
Level 15

 

He said multi-member LLC.

 

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sjrcpa
Level 15

And he also said the property is owned jointly by the brothers. 

The more I know, the more I don't know.
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TaxGuyBill
Level 15

Yeah.  He is also asking about it on the TurboTax forum.