1065 page 1

[ILLMAS]

Hello I have a TP that has varios rental properties that I report on form 8825, however in 2009 they had expenses not related to the properties (office supplies, telephone, meals etc...) not necessarly linked to a spescific property. So I just wanted to make sure it was okay to report those expenses on page 1 of the 1065, even though there was no revenue to offset those expenses.

Thanks

[michaelmars]

SINCE you aren't supposed to mix ordinary inc and exp and real estate on the same partner k-1 and not to have 2 k-1's per partner, we set up a an extra property called admin and put those items there on the 8825. if its only 2 proprties we might just put 1/2 of the expenses on each building.

if you do it the way you stated you get atx error warning although i am not sure if its a red warning or not [allowing efile]

[jainen]

>>just put 1/2 of the expenses on each building.<<

I prefer this way, though not necessarily equal portions, unless it's too much work. Setting up a dummy property to post expenses is usually a reasonable alternative, but rental expenses should not be shown as non-passive. Allocating the expenses gives a better picture of the true economics of each property, helps in calculating passive income/loss for carryovers, and can protect against improper expenditures.

[RoyDaleOne]

The correct way is to allocate common expenses to each property by some reasonable method applied consistently each year. The passivity loss computation can be incorrect if you use a dummy property.

If the expenses are related to the rental activity then the expenses should not be on page 1.

[michaelmars]

The passivity loss computation can be incorrect if you use a dummy property.

If the expenses are related to the rental activity then the expenses should not be on page 1.

i agree with the above statement but usually these expenses are very minor in relation to the properties, llc fees, some telephone, auto etc. if its larger such as a master insurance policy, or a common super or even a bookkeeper then we allocate to the specific building

[jainen]

>>but usually these expenses are very minor <<

If it doesn't make any economic difference anyway, why ever would you draw IRS attention to the return by taking a non-conforming position on it? Just list all the expenses on a spreadsheet (I would use pencil and lined paper), with a column for total and each property. Don't lock yourself into an arbitrary percentage. Ask the client to make a reasonable allocation based on time, importance, difficulty, or some other reasonable measure. The whole thing shouldn't take more than a few minutes.

[kcjenkins]

I agree with Jainen on this, if the expense is minor, why not just allocate? If you've got three properties, and $360 of admin expense, just put $120 on each property, and move on. If you have a mower used on all three, either set it up as three items, 1/3 on each property, or put it on the largest property, or on the property where it is stored when not in use, and don't worry about it.

[mcb39]

I agree with both Jainen and KC. That is exactly how I do it and I have a fair amount of rental returns. The bottom line here is that it is a legitimate deduction and is being deducted somewhere. I really believe that is all that matters.

[jainen]

>>being deducted somewhere... is all that matters<<

I can't go quite that far. Do not for example, pile everything on one property to avoid a non-deductible passive loss. And do not use arbitrary percentages, like half and half. Insist that the client make a reasonable estimate. Besides the factors I gave, KC offers two more. Almost anything will work, as long as it is real.