Alexandria, VA asked in Real Estate Law and Tax Law for Texas

Q: Selling an investment home, how do I show profits are going to business partner when title is in my name?

I am financing an investment property in Texas that will be sold when it is finished making it a short term capital gains. The business partner I am working with is the person doing all the rehab and will be taking the lions share of the profit however I wanted to be the person on title because I was the one financing the project. At the sale of the property, how do I show the profits mostly went to my business partner? Do I need some form to give to the person or just write it as an expense and then they reflect it in their return?

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2 Lawyer Answers

Andrew M Steiger

Answered
  • Tax Law Lawyer
  • Grosse Pointe, MI

A: If you and your friend are in business as a partnership, you’d file a form US 1065 and give each partner a K-1 form to report items of income on your 1040 return. It sounds like you should work with a local accountant to figure this out. If you’re not a partnership, then your payment to your friend wield be an expense to you and income to him as an independent contractor. Maybe you give him a 1099 as well, and he pays his people and worries about his own expenses. A written legal agreement outlining rights and responsibilities would help substantiate any reporting that you end up doing.

Bruce Alexander Minnick agrees with this answer

Stephen V. "Steve" Davis

Answered
  • Austin, TX
  • Licensed in Texas

A: To keep the record straight and closing you should have the title company issue Separate Checks to each of you and make sure on the HUD-1 that there are line items for each of you. That would be proof of any outcome of a written agreement between you and your Co investor

Bruce Alexander Minnick agrees with this answer

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