Rental properties

[irena]

My two clients, father and son, have three rental properties in both their name.  Father was always reporting all income/expenses for one property and son was reporting income/expenses for other two properties.  Now the father is retiring, and the son took over management of the rental property.  How do I report the transfer on both returns for that one property since both of them were and still are owners on all properties since they bought it?

[joshuabarksatlcs]

Last time I checked, rental income is reported by the taxpayer who is entitled to, and realizes, the income, and expenses are claimed by the one who is obligated for, and incurs, them. 

When two persons co-own rentals, aren't the income and expenses reported based on the economic substance, instead of being determined by who manage the rental activities?  

How do your clients intend to do "the transfer"?  How are they going to change the split (and thus the entitlement & obligation) of the income and expenses?  Are they going to change the ownership/title of the rentals?

Not to open another can of myself, but who are the father's heirs?  Is the son the only one?  They may also need to make clear their concept of property ownership for the purpose of the father's will or trust.  But then, I've just stepped into the turf of @IRonMaN  and @BobKamman who are, in this forum, the few almost-certified in bringing up new, tangential issues...

And I digress    

[IRonMaN]

It's your turf and you brought up some good points, although I think Bob will bring up some additional points --------------- like the time a client of his did this in 1969 😀

[taxes96786]

Need more info before you do anything:

Who is getting the rental income and paying the expenses on each property since father retired?

Did he retire from only managing the property?

Are all three property deeds and mortgages in both names?

[BobKamman]

They probably should have been filing partnership returns from the start.  

[Skylane]

@BobKamman  Agree 100%

@irena  for 2022 you should continue as in the past. That ship has sailed. Moving forward the properties should be deeded to the son. In 2023 you can handle the sale or gift of the fathers interest.

As for the benefit of a stepped up basis that an heir receives… you can’t have your cake and eat it too.