Rental property partnership question

[Vityaba]

I do not have a lot of experience with partnerships and need your advice:

I have a client who purchased a rental property with a deed under her name only but in reality she has a partner who put 50% of the down payment amount paid and they both manage the property. To be fair to the partner and to have a clean picture my client wants to be able to split income (or loss) from the rentals equally between two of them. One way of doing that is to prepare her income tax with and without the rental and whatever the difference is will be split between two of them. Another way I handle this is to file a partnership return. As far as I understand there is nothing real special needed to create a partnership. They just have to have a partnership agreement (written in this case) and I sent them to their attorney for that. As to the taxes, even though the property was purchased in 2012 I I can apply for partnership EIN this year and file 2012 return using that EIN. Correct me if I am wrong

Now the fun part, which I do not really understand a lot and would appreciate if someone can advise and perhaps even suggest good resource where I can learn more about partnerships. I know the partnership can distribute income equally even if the contributions to the partnership are not equal. In this case one partner owns the building, is solely responsible for the loan, and contributed 50% of the downpayment. The other partner contributed the 50% of the down payment. If the partnership has net income I do not see any issues - the income is distributed equally. But if the partnership has a loss which is more than what the partners put down as a downpayment, can it be deducted on their personal returns (assuming their AGIs are less than $100K)?

Thank you

[jainen]

>>good resource where I can learn more about partnerships<<

Pub 541 is a decent intro. It's only a dozen pages but covers the basics, including formation, distributions and other transactions between the entity and the partners. Remember that joint ownership of rental property is not necessarily a partnership. See how the attorney writes it up before you make decisions.