Can unmarried Tenants in Common report investment property income/expenses on their Schedule E's or do they need a partnership entity?

Question

Thank you in advance to whoever decides to read this and offer their insight.

A friend and I own residential rental properties as Tenants in Common, 50/50 split under our TIC agreement. We have a federal tax question that our CPAs disagree on.

His CPA says we need to create a JV entity and get an EIN, create a partnership return for the JV, and issue K1s to ourselves.

My CPA says that's unnecessary and that we can just each report 50% of the income and expenses -- rent, P&I, insurance, etc. -- under our own Schedule E.

From my research, it seems like the difference might lie in the question of whether we are a Qualified Joint Venture. However, everything I can find about QJVs is trying to answer questions for spouses, which we are not.

Which CPA do you agree with and why?

Answer 1

Your friend's CPA must be wrong, but that doesn't mean that your CPA is right: Having signed a TIC agreement, you cannot be compelled to create a JV just to enable you to file taxes. The IRS has a "come as you are" approach. The IRS does not go around forcing people to change their business arrangements. Seriously, they have enough to do without interfering in your business.

A JV may or may not be advisable, but that's another question.